I’ve been on an HSA+HDHP for a couple of years now and only realized recently the interest earned from investing HSA money is also tax free, so I want to start investing a part of my savings and see how it goes. I have 2 options, Betterment or Mutual Funds. I figured I’d try the latter to avoid fees, but I’m not sure which funds to choose. My HSA currently provides 30 fund options.
I see people mentioning Vanguard a lot so I spread out my initial investment into 25% chunks across 4 different Vanguard funds. How did I choose them? Well I literally just looked at the performance graphs and selected the ones that historically went up steadily without major dips. As a total noob, how can I improve my choices? Is there a simple way to decide without having to dive deep into the stock market?
Thank you! Your explanation clicked in my head. I thought Vanguard vs Schwab, etc. meant different underlying stocks; didn’t understand that’s the brokerage. I will definitely take everyone’s advice and look at the S&P 500 (I think that’s one of 4 I chose, I’m not at my desk right now).
Just to reiterate, having more funds doesn’t mean you’re more diversified. For example, let’s say you have the following (ETF/Mutual Fund tickers):
- VOO/VFIAX - Vanguard’s S&P 500 fund
- VTI/VTSAX - Vanguard’s Total US Market fund
- VV/VLCAX - Vanguard Large Cap CRSP fund
- VONE - Vanguard Russell 1000 ETF
These are all basically the same thing.
Let’s compare to just two funds:
- VTI/VTSAX - Vanguard Total US Market Fund
- VXUS/VTIAX - Vanguard International Total Market Fund
This is way more diversified because VXUS/VTIAX has a lot of stocks outside the US, so if the US tanks relative to the rest of the world, you’ll be better off. You can even make it just a single fund, VT/VTWAX, which gives you global exposure (something like 60/40 US/international).
Thanks. Here’s a screenshot of my options:
https://files.catbox.moe/dezord.png
You can see where I randomly allocated each of the 25% of my investment. Is “Vanguard 500 Index - A” the same as the S&P fund that everyone is recommending? And should I just move everything there instead? I’m guessing I need to choose one of the 2nd and 3rd in the list for the international side so I’m not overly dependent on the US market?
Yup, VFIAX (the Vanguard S&P 500 index) is what everyone is saying.
Here’s what you’re invested in:
- VFIAX - S&P 500 fund; 500 biggest companies in the US
- VEIRX - basically a “value” tilt version of the S&P 500, but with far fewer companies (~200 vs 500)
- VSMGX - conservative, properly diversified fund - 60% in stocks (diversified with international stocks), 40% in bonds
- VUSXX - basically cash
So overall, here’s what you’re looking at (back of the napkin math):
- 35% - cash and bonds
- 55-60% - US stocks
- 5-10% - international stocks
So you’re pretty lightweight on international stocks.
Personally, here’s what I’d invest in:
- VITSX - Total US market, meaning there are smaller companies in there as well; 85% of it is the same as the S&P 500, so it’s not that different, but small companies have historically done better than big companies, so it’s good to have some of that exposure
- VTMGX - pretty much total international market
To be evenly diversified globally, you’d do something like 60% VITSX and 40% VTMGX, but I personally think the US will outperform, so I do 70% US and 30% international.
If you’re risk-averse and feel like you’d sell if there’s a market downturn, you can add some bonds (VBTLX) and put something like 10-20% in it (assuming you’re young-ish; if you’re over 50, increase it to 30-40%). But honestly, there’s not much point if you’ll just set it and forget it. If you want something super simple, VASGX looks pretty decent (20% bonds, so a bit less extreme fluctuations in a downturn).
A lot of people honestly just go 100% S&P 500, because a lot of those companies do business in other countries, so you’re kind of getting international exposure. I personally prefer explicit international exposure though, hence my recommendation.