*My apologies for the brevity of this post. I’m feeling terribly under
the weather (thanks, DC, for being 80 degrees one day and 40 the next). More on
this topic to come.
Now that we’ve gotten what fees and expenses to look for out of the
way, it’s time to talk actual funds. Please note again that I am not an
investment professional (yet!) and can only educate on the types of funds out
there. I’m not selling funds until I get some commission. ;)
For starters, you already know about equity (or, stock) funds and bond
funds. (More on bonds in a future post.) Depending on the financial advisor,
advice will range from “go 100% equity” for young people to “keep it 50/50
stocks/bonds.” As stated in previous posts, your choice depends on your risk
tolerance, but know that risk aversion, or a very high allocations to bonds,
can lower your returns potential over time.
That said, look for stock funds that have the broadest range of stocks
possible, like an index fund that reflects the S&P 500 or Wilshire 5000. If
you find an index fund that has every stock available (more than 5,000), go for
it, for maximum equity diversification.
Next, throw in a good mix of U.S. Treasury, and maybe corporate, bonds.
The longer the maturity, or length of time until you get the principal amount
back, the higher the yield, to compensate you for the risk you’ve taken of
giving your money to the government for such a long time (the longest maturity
available for U.S. Treasury bonds is 30 years).
Don’t forget international stocks and bonds! They provide great
diversification to a U.S. investor’s portfolio.
I recommend finding index funds for all of these asset classes. If you
have to go with an actively managed fund (as you would have to do for bond
funds), go with one with low fees and high ratings on Morningstar.com, a
well-respected finance research website.
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