Do I recommend this strategy?

I recently summarized the history of my Mutual Fund Portfolio Experiment and was asked:

"Do I recommend this strategy?"

The answer to that is, "It depends."

When thinking about how to invest you have to ask yourself a bunch of questions: What is your risk tolerance? What are your goals? What is your time horizon? etc.

Here are some thoughts in general:
  • I think looking at mutual funds is a good idea for a new investor as mutual funds offer a lot of diversity with little effort.
  • Funds with low initial investment minimums let you buy more than one fund with relatively little money, offering even greater diversification.
  • With the interwebs it is easy to find funds with low expenses and low turnover (which is important for investing in a taxable account).
  • No transaction fee no load funds are good to consider since they are less expensive to buy than other funds.
  • The funds I picked specifically allow $100 subsequent contributions for no fee so they are ideal for someone who wants to regularly contribute to their portfolio over time.
  • If you do not want to regularly contribute to the funds over time, in many (but not all) cases, there will be better options.

So I won't recommend this strategy to anyone specifically because I do not know their specific situation AND I'm not an adviser. But I do follow a strategy similar to this one myself for the account I try and add to consistently.

This specific experiment is meant to explore the process of investing in mutual funds. By explaining this process and providing regular updates, I hope to learn and to demonstrate what the process of investing can be like. When you watch a diverse portfolio of low cost mutual funds tank, how do you react? When the portfolios don't keep up with specific individual indexes you care about, how do you feel? Hopefully this will actually provide some context for you to think about your risk tolerance.

This experiment is also designed to look at Managed funds, Index funds, and ETFs side by side and see how they compare. I personally think a mix of all three makes sense depending on your situation and your goals.

I know this answer won't satisfy some people who want to be told what to do. For those of you who feel this way, you should have no problem finding an adviser who will charge you a nice fee to do just that. I don't recommend it though! An adviser might be a good idea, but don't let anyone tell you what to do about anything! Of course, I just told you what to do so if you take my advice you ignore my advice. See why you don't really need to worry about what I think anyway?

What I am going to do is set up my actual investment portfolios in morningstar and try and compare how my accounts perform next to the hypothetical ones. While I can't answer the question "Do I recommend this strategy?" for you, I suppose I should explore the question-"Should I follow this exact strategy, myself?"

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