Investing in Vanguard global index funds gives your portfolio the extra global diversification for a fraction of the cost of traditional mutual fund expenses. The truth is 80% of fund managers do not beat their fund matching benchmarks. So if you invest in a benchmark, rather than an overworked fund manager’s often speculative stock picks, Vanguard is a good place to start.
What are Index Funds
Index funds are simply investments that attempt to match the investment returns on a certain benchmark or index. For example, the Vanguard 500 Index fund (VFINX) attempts to match the investments returns on the S&P 500.
Vanguard Global Stock Index Fund Choices
Currently, Vanguard offers 6 different international index fund choices for the passive index fund investor.
- Vanguard Developed Markets Index Fund (VDMIX) - attempts to match returns from Europe and Pacific region indices. It’s a combination of Vanguard European Stock Index Fund and Vanguard Pacific Stock Index Fund.
- Vanguard Emerging Markets Stock Index Fund Investor Shares (VEIEX) - attempts to track the investment returns of MSCI Emerging Markets Index.
- Vanguard European Stock Index Fund Investor Shares (VEURX) - attempts to track the investments returns of MSCI Europe Index.
- Vanguard FTSE All-World ex-US Index Fund Investor Shares (VFWIX) - attempts to match the investment returns of FTSE All-World ex US Index.
- Vanguard Pacific Stock Index Fund Investor Shares (VPACX) - matches the investment gains/losses of MSCI Pacific Index.
- Vanguard Total International Stock Index Fund (VGTSX) - attempts to track the investment returns of MSCI Europe Index, the MSCI Pacific Index, and the MSCI Emerging Markets Index.
What’s So Special About Vanguard?
For one, Vanguard is an excellent financial institution founded by legendary investor John Bogle. Bogle wrote The Little Book of Common Sense Investing, which I’ve heard great praises about. Tack this book onto the list of must reads for 2007.
Not only is Vanguard the “vanguard” of investment managers, but Vanguard is maybe the most cost effective investment firm in the business. Each Vanguard index fund charges an expense ratio of 0.45% or less. You can’t be those prices anywhere else.
Vanguard Index Funds Recommendations
I like the Vanguard Total International Stock Index Fund and the Vanguard Emerging Markets Index Fund. It makes sense to own the total international stock index because we should continue to experience larger gains from international stocks over the next 3-5 years.
As for the emerging markets funds, it’s safer to buy into a tracking index because emerging markets shares trade with high volatility. Take some of the burden off yourself and your portfolio to beat the market, and enter a passive emerging markets index fund (unless you know exactly what you are getting into).
The minimum investment for each index fund is $3,000. Once my summer job is over, I may have enough money to open an account at Vanguard. I’ll keep you posted on that matter.
How are Vanguard Index Funds treating your portfolio?
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Anyone out there know of a discount broker that will allow you to buy Vanguard funds without any fees? I feel like I’ve seem one before, but I’m just not sure who it was. It would be so nice to have the index fund and the stocks all on one statement.
-Brian
Actually while you’re talking about index funds, I’ve had this idea rolling around in my head, but no time to back test it. If you’d like to roll with it, TJP, be my guest:
Instead of investing in a whole market index fund. Why not brake it up into individual funds? Since different sectors perform well at different times, you could add to the least performing fund (or rebalance if you don’t have any funds), thereby always buying low. You’d just need to figure out what ratio of each of the funds has worked well for the past 30 years and pray it holds for the next 30.
Make sense?
-Brian
Wishing you luck on your savings! Offhand, do you know which mutual fund marketplace has the lowest initial investment requirement? thx
@AgentSullya
Here’s a list of index funds including their initial investment requirements. I think some will wave the requirement if you agree to a monthly deposit. Be sure to check the expense ratio as a high one will kill your returns.
-Brian
Disclosure: I write for The Motley Fool
@ Brian
Go to Zecco You get free stock, ETF, and index fund trades.
@ Brian
Great idea! There are some Vanguard sector funds that I like as well. Plus, I have great expectations for water, nanotechnology, and nuclear energy in the future.
I’m going to invest a large portion of my summer job cash flow.
Got any specific Vanguard fund picks?
thank you.
I’m scared of Zecco. I just can’t see them being around a long time with that business model and as you know it’s a hassle to change brokers (and imagine if they close and everyone is trying to get out at the same time). Plus, I think they have a maintenance fee and since I’m not a trader, the free trades aren’t really worth more than the maintenance fee.
I believe the fee is $30. But I agree with your statement on the flawed business model. But it’s hard to ignore free trades.
If they raised the account minimum to like $5 to $10k, their margin trading balances and profits would grow.
Next cheapest is Buy and Hold. They’ve been around for a while. $2.99 per trade is the best you’re gonna find.