Fed up with article after article saying buy this fund and that fund when no single brokerage actually lets you buy all funds, I chose a single brokerage (Etrade) and started researching funds in 20 different fund categories.
Curious whether this approach would lead to a portfolio of funds that could beat a similar portfolio of index funds, I identified the 20 Vanguard funds that most closely tracked the fund categories I had selected.
Also curious whether ETFs would be a better bet, I selected 20 ETFs, one for each category.
On May 1st, I invested $50,000 in each of the three portfolios by hypothetically 'purchasing' them, using the Morningstar.com portfolio tool as it allows me to reinvest dividends and capital gains distributions with minimal effort.
The funds I chose all allow minimum investments of $2500 or less. The Vanguard funds have higher initial investments, so you would not actually be able to buy the Vanguard portfolio unless you had more than $50,000 up front.
Also, the funds I choose all allow subsequent investments of $100 or less.
My goal here was to research a real world example of low cost options available through a
single brokerage that could serve as a model for someone with modest investment savings and a plan to invest over time.
Then by tracking the performance of such a portfolio against a couple of benchmarks, I hope to discover if this approach is worth the time and effort.
Finally, I also started tracking a portfolio of the 20 funds I selected, available through Etrade, buying one fund at a time to mimic how one could actually build this portfolio over time. I am adding the next fund, in the order I picked them, investing on the first day of each month that domestic markets are down significantly (leaving 'significantly' intentionally undefined).
Now I am going to add two new portfolios setting up additional $50,000 portfolios, invested on May 1st.
First, I am going to track the growth of SPY as a measure of the S&P 500.
Second, I am going to invest in total market indexes, in loose proportion to the 20 funds I have chosen: Vanguard Total Stock Mkt Idx VTSMX (55%), Vanguard Total Bond Market Index VBMFX (15%) and Vanguard Total Intl Stock Index VGTSX (30%).
If this 3 fund portfolio comes close to the 20 fund versions, then the answer is pretty clear as to what is the best (most efficient/worthwhile) way to invest in mutual funds, at least out of these options!