New To Investing? Vincent Chan Says Low-Cost Index Funds Are the Easiest Way to Get Started
Investing is one of the common paths to long-term wealth, but it can feel complex if you are just getting started. Luckily, financial guru Vincent Chan recently revealed the simplest way to get started.
Not only is it easy to start investing based on Chan's advice, but his strategy has a proven track record of multiplying your money in the long run.
The Easiest Things To Invest In Are Low-Cost Index Funds' Chan explained in the video.
It sounds basic, but that doesn't make it a bad suggestion. Here's why index funds remain one of the most popular ways for people to invest.
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Index funds offer investors exposure to a basket of companies. Some index funds contain a few dozen companies, while other index funds contain hundreds of publicly traded corporations. A couple of index funds even have well over 1,000 stocks, offering broad exposure to the market.
You don't have to get the most diversified index fund to get good results. Some funds with 100 stocks perform better than funds with 500 stocks. The main strength of index funds is that they enable automatic portfolio diversification and streamline investing.
You don't have to research a bunch of stocks, know what to look for in a good stock or follow the news every day. A portfolio manager can do all of those things for you as your money grows in an index fund.
You can accumulate index funds in any investment account that lets you trade stocks. However, Chan suggests giving preference to tax-advantaged accounts like your 401(k), HSA, and Roth IRA when you make investments.
These accounts let you reduce your tax bill as you grow your investments. Traditional retirement accounts let you reduce your taxes right now, while you won't have to pay any taxes on withdrawals from your Roth IRA.
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Chan suggests investing any remaining money into a brokerage account once you have maxed out your tax-advantaged accounts. Investors should also monitor any changes the IRS makes to the maximum amount they can contribute to retirement accounts. You also get to make catch-up contributions to your retirement accounts the moment you turn 50.
Chan recommends looking for index funds that have low expense ratios. This ratio reflects the cost of holding the fund and having an investment firm manage it on your behalf. Passively managed ETFs that mirror benchmarks like the S&P 500 typically have low expense ratios. It's realistic to find passively managed ETFs that have expense ratios below 0.10%.
Investors can further explore index funds by analyzing their total returns. You can look at how much a fund has returned over the past five and ten years to gauge if it's consistent or volatile. It's also good to look at a fund's asset allocation to see if most of the stocks are in the tech sector or another industry.
Some investors also look at a fund's yield to see how much cash flow they will receive just by holding on to shares. While most investors shouldn't prioritize a fund based on its yield, receiving passive income from investments becomes more valuable as you get closer to retirement.
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This article New To Investing? Vincent Chan Says Low-Cost Index Funds Are the Easiest Way to Get Started originally appeared on Benzinga.com
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