Vanguard Index Funds For Beginners (Top Investments)

hey everyone so in this video we're gonna go in-depth to learn about Vanguard index funds mutual funds ETFs how they all relate and how you can get started investing into some of these funds as well as some of the options that might be available to you you know I think there's a lot of confusion around this and sometimes you might hear people using these words interchangeably talking about ETFs and mutual funds and index funds how they relate and how you can get started with this so hopefully we can answer some of those questions that you might have and if not leave a comment down below and we can help you further on throughout the video so let's get into this right now if you're new here to the channel make sure you subscribe drop a like and let's get started so the first thing we want to think about is is you know when you're thinking about investing into the market you want to think about realistic goals and the overall average growth in the stock market is about 7% per year on average and there's never been a 20 year span where the stock market has actually gone down over that 20 year period and stayed down that whole time right so generally speaking the markets grow now that might not always be the case but it we're pretty sure it will be the case that the markets will grow over the long term and so because of that we can invest into some of these different funds that are available to us now ETFs and mutual funds they're very similar in a lot of ways they both are kind of baskets of stocks they might hold a couple hundred different stocks or a couple thousand different stocks within that particular fund so in a lot of ways they're very similar but one of the differences between them between the two is that ETFs generally are a little bit more liquid easier to access and easier to get into if you're starting with a smaller amount of money whereas mutual funds can be a little bit more tricky to start if you only have $50 or $100 it can be harder to get into mutual funds so Vanguard offers both of these there's no Commission's to buy or sell these mutual funds or ETFs we're going to talk about expense ratios later on this video and some of the different options that you could think about as well but what's an index fund and what's a mutual fund before we actually kind of dig into these because it's very important to realize this that an index fund is generally a lot more passive so so the way to think about this is that it's passively managed right so so index funds might track the overall market they might track the S&P 500 or the Dow Jones Industrial Average where maybe the Nasdaq right but but generally speaking it attracts those stocks and if those stocks go up it goes up right but but a mutual fund could be actively managed so you could have somebody managing that mutual fund maybe some really smart bigwig on Wall Street might be managing that mutual fund and saying okay let's buy 2,000 shares of this company or sell 20,000 shares of this other company so that they can hopefully try to beat the market or try to beat some of these index funds so mutual funds a lot of them that are actively managed are gonna charge you an expense ratio I don't want to confuse anybody here hopefully we're making sense if not let me don't let me know down below but I think all of this will make sense by the end of the video trust me on this so so mutual funds a little bit more actively managed than mutual then then index funds but let's let's kind of just dig into this and maybe I can show you some examples here that might be a little bit easier to understand so for most people who are just starting in the markets who want to just kind of get the feet wet and start their investment portfolio on something like Vanguard or maybe you want to use the Robin Hood app you can buy these funds through Robin Hood or even m1 finance or fidelity whatever your heart desires may be if you're not in the US and you're in a different country you might have a different Viroqua or that's available to you right but regardless you want to think about the types of different funds you want to think about right so you want you know personally I like ETF's over mutual funds just because they're easier to get started with right so let's kind of look at some of the pros of ETFs here it's called an exchange-traded fund through Vanguard like I said no commissions and there's a lot less risk here so you know sometimes I'll see people jumping into the market and buying individual stocks or individual bonds and in some cases that can be a little bit risky because you're not you're not kind of diversifying but if you're getting something like an ETF through Vanguard you're generally going to be diversifying through hundreds of different companies or hundreds of different bonds that's going to make it a lot easier for you to not lose a lot of money so it can be less volatile compared to some of the other risks that you might get into with individual stocks it's also a lot less work I mean I can tell you this that a lot of the money that I'm putting into some of these different funds it just pours in there and I don't have to think about the earning statements or what the CEO of Tesla might say tomorrow I don't have to worry about that because there's a lot less work going into it I don't have to read the financial statements of a company like you would with an midgel stock I just know if I pour it into something like the S&P 500 index fund that it's it's generally going to be okay over the long term and I'm investing into really the US economy in a lot of ways by doing that right so it's a lot less work which I think can free up time for you to go make money or or go do something that you really enjoy doing instead of spending that time trying to make money in stocks right so this actually does have a big advantage you think about the opportunity cost think about how much time people spend actively investing versus passive investing like what most of these funds are gonna make you able to do passively invest right I don't spend a lot of time actively investing anymore I really don't I put money into some of these funds and I don't worry about it I don't think about it and it takes up a lot of my time if I try to do otherwise and try to pick in individual stocks it's also much lower of a cost so Vanguard offers a lot of different funds here and and they have something known as an expense ratio just about every ETF and mutual fund that you might want to consider buying he's going to have something called an expense ratio and this is essentially a little number that you'll see that pops up that'll say maybe 0.05 percent right so that means that a one twentieth of a percent is going to be taken from your portfolio or more from the money that you have in this particular fund every year right so in some cases some of these expense ratios can be 1% now if a fund has an expense ratio of 1% and you have a million dollars in there that could be a lot of money that could be ten thousand dollars that's taken out every year to manage that fund so that's one expense ratio it's essentially like a management fee imagine if you pay a financial advisor half a percent per year to manage your fund or to manage your portfolio that's essentially what an expense ratio is okay so you want to keep those in mind as you go through the funds I'm going to show you in this video you want to keep those expense ratios in them in your mind and you want those expense ratios to be really as low as possible now the lowest I've seen on Vanguard is 0.04 percent that is probably the lowest expense ratio I've ever seen on any financial institutions offerings for mutual funds or ETFs so 0.04 percent is considered very very low I personally don't like to invest into anything with expense ratios over half a percent so 0.5% or more I don't like to invest into those because that means that they're taking a pretty large chunk of your investment out every year and even if that investment goes down they're still taking that chunk out that goes up they're still taking that chunk out of half a percent per year and it can really add up maybe if you have a thousand dollars in there it doesn't sound like a lot but if you have a million dollars in there when you're getting ready to retire that can add up to a lot of money that's getting taken out on a yearly basis so expense ratios we can look a little bit more into those later on and we'll give you some good examples of those but generally speaking Vanguard has much lower costs than any other financial institution so I believe the statistic is Vanguard average expense ratio is 0.11% whereas the industry average expense ratios are about 0.67% so there's a huge difference between the industry average and Vanguard this is why I love Vanguard and like I said you don't have to use this specific company to actually buy and sell these different funds these ETFs but you can use different ones you can use Robin Hood to buy Vanguard funds you can use m1 finance to buy Vanguard funds you can even use fidelity to buy Vanguard funds but you're going maybe to have to pay some different fees depending on the brokerage firm that you're using but Robin Hood for example there's no fees on that or you could buy it directly through Vanguard which I prefer to do so so it has much lower cost as a whole and and we've already went over kind of why ETFs could be better than mutual funds but lower investment minimums and real time pricing as well so that is pretty convenient to have okay so let's talk about some of these different funds it's probably what you've been waiting for some of the different funds that are available to you so just looking at Vanguard ETFs now you can also look at mutual funds here just click over on the other tab if you'd like to but I think most people would like to consider ETFs or like I said pretty similar but there's 59 different options that we have here for ETFs through Vanguard right so we're going to kind of cover some of these different ones here u.s. bond ETFs generally seen as pretty safe and that's because the government is is seen as one of the safest options for investing into them so I'm gonna show you some different options here but you'll want to kind of keep some of these key metrics in mind so this is going to be the the total gains since inception and then also the average annual returns for a one year five years in ten years now I want you to be careful when you're looking at these gains since inception you want to be careful because sometimes you'll say wow you know all right this one's up six point six five percent when was it actually created ok 2007 so that's actually not bad but some of these you might see they're created in you know 2009 or 2010 well if you had great growth on that it may be it in a bull run for ten years now so you want to think about when that fund was actually started and how that might reflect on the actual gain on that particular fund and then you can also look at the expense ratios right here so 0.07% for a lot of these different US bond ETFs that are available and if you see these little s here that's kind of one that Vanguard kind of I believe the term is Vanguard select EPS so these are the ones where if if you're all you know you only pick a couple different ones it's kind of their recommendations for picking particular funds but you could look at long-term bond ETS but it generally speaking you know I think it's hard to go wrong with putting something into you know total bond market ETF very general very broad and you can even click on it and see what it actually encapsulate it plays a large amount of different variety in here but its bonds are generally seen as pretty safe now I'm not a financial advisor so you're gonna have to make your own decisions on this those videos for educational purposes I'm not telling you to buy or sell anything particularly and if you do that based off of one video from a random person on the internet I'll be slightly concerned I'm just trying to give you different ideas here but you can look at the risk potential which I think is important to do for all these different investment options all 59 of these different ETFs that are on vanguards website you can see the risk potential for them so for a lot of these bonds you're gonna see them at one or two or maybe three for some of these different like corporate bonds that have lower ratings but you can see what they're made up of so so we can see the growth over the past ten years as well and how many fared so if you had $10,000 in 2009 about $14,000 today if you put it into this particular fund and that's for a bond that's not too bad but let's go back to the main page and see what other options or available to us and how we might want to decipher what we want to put money into right but something else you want to think about you know with with people who are young like myself I like to put some of my money into things a little bit riskier because I can afford that because I'm 20 if you're 59 or 65 maybe you want to think about not risking it too much because maybe you can't afford to you know lose 20% of your portfolio or 30% of your portfolio in the next couple of years if we have a market crash or a recession and you need to rely on that for retirement maybe don't put too much risk out there and maybe kind of play it safer with some of these different bond funds once again though this is just an idea not telling you what to do here now investment grade bonds are a lot of these are corporations so some of these long-term corporate bonds have been yielding pretty nice returns over the past ten years or so so just looking at a fund like this one right a long-term one will be seeing us a little bit riskier in some cases versus short term bonds but these are corporate bonds that you're investing into so this has a risk level of 3 which is right in the middle but we can see that the composition of this fund right so government bonds pretty high right triple a double a single a right so you can see that these riskier bonds make up the majority of the portfolio here so these two make up the majority of the portfolio which are seen as riskier than these ones up here the US government bonds or seen as these safest options they're the least likely to default on those loans and and there's not that many in this long-term corporate bond etf and that's why it's been performing pretty well because the economy's doing pretty well but this isn't always going to be the case but you know putting money into bonds couldn't be a good option for people who do want to play it a little bit safer maybe not put as much risk out there on the table but let's look at some of these different stock ETFs and one of my favorite options for stock ETF now by far my favorite and once again I'm not a financial advisor so please don't like go out and just do this just because I'm saying this but one of my favorite is the sp500 ETF so the ticker for this is vu it's just v/o oh right but this is one of my go-to because this holds essentially a lot of different companies within the market now it's also been performing very well it's been for performing about 14% per year since 2010 which the market was very low at 2010 but even at that it's been doing very well this is just something that look it's gonna be riskier I believe the risk level on this is probably for maybe it's it has to be at least four but but for myself yeah so it's for the expense ratio is incredibly low 0.04 percent you're probably not gonna find anything lower than that so they're barely taking out of your any of your money there's no cost to get into it there's no Commission to start buying this particular fund but this is by far one of my favorites it holds 500 of the largest US companies so you're essentially just kind of investing into the overall US economy in a lot of ways and and this this is more volatile though and you want to think about this because like I said look if you're not willing to possibly lose some money over the next year or two or three years then maybe you want to hold back from something like this but if you're willing to say you know what okay I might put money into this it might grow very well or it could go down a little bit then that's gonna be great but you can look at their 10 largest holdings and you'll see that yeah it's Microsoft Apple Amazon alphabet so instead of going out and having to buy all these individual stocks you can buy a fund that encapsulates all of these and it can help you long-term with taxes so in in the u.s. we have long-term capital gains tax right and so if you're putting money into these funds and holding them for a long time your long-term capital gains tax might be 15% maybe 20% but if you're doing short-term capital yet or short-term income tax if you're selling it after less than a year then you're going to be hit with higher tax rates especially if you're making a lot of money at the moment could be hitting with thirty four thirty nine percent tax rate on some of these things but if you're investing into them for the long term like some of these funds you could be much better off by just dealing with it by hitting long-term capital gains which a lot of people will do with these funds so you know if you're buying individual stocks and you're buying and selling buying and selling buying and selling you can be hit with a lot more taxes versus this long term strategy here know you can also think about just the total stock market ETF this is a great option as well for a lot of people but you could you know a lot of these different stock ones are going to be seen as riskier so they'll be at that level three four or even five but the dividend depreciation ETF is also one that I put a decent amount of money into and you'd have to diversify too much throughout this so for example you don't have to buy all 59 of these different ETFs to make sure that you're fully diversified you could get maybe four or five different funds throughout and kind of decide how you want to put money into them maybe your you want to put 20% into bonds corporate bonds and then another 80 percent into the sp500 ETF right so it's really up to you on how you want to balance this out like I said personally since I'm young I can afford to take more risk so I put a lot into the S&P 500 ETF which seems to be performing very well at the moment mid cap stocks so these are gonna be middle to your stocks and then small cap stocks are generally gonna be seen as riskier the risk level on this is probably going to be something around a 5 which is some of them riskiest you could possibly get but they also have the chance for growing a lot faster a lot better so yeah so the risk potential on this is a 5 so if if you're older and you can't afford this then maybe hold back from this but if you can't afford this and have that chance for getting very great fast growth it could be an option for you now let's just look at some of other ones on here there's not too many more than we have on here but we have a lot of international ones that we can cover very quickly so we have international bonds emerging markets but then we also have some of these different ones throughout here so international stocks can be seen as kind of risky too in a lot of cases emerging markets I would argue is one of the riskiest that you could possibly get into a lot of these are have different countries well that are emerging right so a lot of countries throughout Asia and I believe the largest holdings for this one I believe are like Alibaba or 10 cent or some of these different countries over in China in some different countries across overseas right and they are seen as a little bit riskier but they could provide a lot of growth and we're talking a lot of growth in some of these small cap stocks or some of these different international ETFs right but I would caution you to think about you know not putting all of your money into something that has a risk potential of five because you couldn't lose a decent amount of money in that and you want to be careful with that but once again the expense ratio on this point one two percent very low which is nice to see and and like I said most of these funds on here have a very low expense ratio overall I don't think you're gonna see anything really in in the double digits here so 0.07% you're not gonna see anything a lot higher than that in a lot of cases now there's also a sector and specialty ETF so if you're into one particular sector maybe you want to get into health care right and you think that the healthcare market especially in the US is going to be doing very well over the next 20 years which I personally believe that considering how many health problems and how much terrible food and how little exercise Americans do I think that it's going to be doing very well in the future so you can invest into one particular sector now not all these sectors are performing very well all the time so you want to choose wisely on that and and you know if you're an expert in one field then that's great and that's something that you can personally do but these are the different options that are available to you I just want to kind of show you them and and something you can see which options you might want to choose like I said my co twos I just like the sp500 index it's so simple and it's so passive for myself I'm not a financial advisor I think I've already said that a couple times but it's so passive for myself I just pour money into it and I don't think about it and you know what there's some days when your account might go down to thousand dollars in a day a little bit scary right it's a little bit scary but the next day I might go up three thousand dollars so over the long term as long as you can kind of keep that in your mind that you know what long-term investing is a great option for a lot of people it's the option for me personally and it could be an option for you if you're interested in this I'll leave a link to vanguards website I'm not affiliated with them in any way whatsoever they're just a company that I think really is a great organization so if you found value in this video let me know down below if you have any questions leave them down below I try my best to respond to as many comments as possible sometimes it gets a little bit difficult as this channel has been growing I can't thank everyone enough for subscribing to the channel so thank you I'll see everybody next time

Channel: Nate O'Brien

Views: 401,991

Rating: 4.9436746 out of 5

Keywords: best index funds, best vanguard index funds, etf, how to buy an index fund, how to buy index funds, index funds, index funds for beginners, index funds for dummies, index funds investing, index funds vanguard, index funds vs etf, index funds vs mutual funds, index funds vs stocks, investing in index funds, mutual funds, stock market for beginners, vanguard, vanguard index funds, vanguard index funds for beginners, vanguard investments, vanguard mutual funds

Id: MGSG7B_U9Sk

Length: 20min 5sec (1205 seconds)

Published: Fri Apr 19 2019