Making the blanket statement that VTSAX is the only index fund you will ever need may not necessarily be true. However, if someone only invested in VTSAX for an investment lifetime (say 30+), I would certainly take the bet that they would be set for life. Many people shy away from investing is because they have NO IDEA even how to start or where to place their hard earned money. Getting involved in the stock market is such a daunting task because there are so many horror stories of people losing their life savings from one crash or bear market. I know for myself, I received no formal (or even informal) education on where to begin. In my life, there have been some overarching themes I have gathered (albeit very short) that involve the stock market.
One of the best memories I have from my grade school days was playing the fictitious “Stock Market” game. We were studying the roaring 20’s decade in my 8th grade history class, and the teacher announced we were going to play a game. Each student is given a sum of money to start with and there were roughly 10 stocks to choose from all at varying prices. On the first day, we would make our trades and buy our respective stocks. Then we would see how each of the stocks did when we came into school the next day. We did this for about the next two weeks or so until one day we call came in and saw that ALL THE PRICES HAD MASSIVLEY DROPPED! Being the naïve kid I was I had no idea I was going to lose all my “money” overnight. Looking back, I should have made the connection since we were studying the 1920’s that the Great Depression was coming. But, alas, it was a good life lesson that scarred me from ever wanting to lose any of my money in the stock market.
There are two people in my life I go to whenever I have any sort of financial question: my Dad and Grandpa. Every year, my Dad helped me get all my tax information together and he then sent it on to my Grandpa so he could file them for me. My Grandpa filed all the taxes for everyone in my family. So naturally he is one of my main point people when it comes to finances, coupled with the fact that he retired in 1994 when he was 60 years old. He has been retired for nearly my entire life! Since that is the case he has obviously done some things right. He retired at that age because he had invested wisely, though some will say lucky (myself included knowing the things I know now). He invested mainly in individual stocks and luckily for him he fortunately chose some of the right ones. Now not all his choices turned out so fortuitously, there were some duds and underperformers thrown in there too that caused him major stress. But overall, he came out alright. My Dad, also, has taken that approach for majority of his retirement accounts. He too put a lot of his eggs into a couple of baskets. Both have been extremely lucky in their investment strategies and have weathered the storms quite easily. Learning from these two men, I don’t want to invest the same ways they have. While both are exceptionally fortunate, I don’t want to have as much unpredictability as they did. My Dad over the years had gotten smarter and gave me some advice when I got my first job that allowed me to contribute in a 401k. He told me to put 10% of my paycheck away, right away to start saving early. I listened to his advice and did just that. Once I left that job and moved on, I rolled that money into a traditional IRA and when I did that he gave me some more crucial advice. He told to invest that money into SPY, which I did, even though I had absolutely no idea what that was. It turns out that it has been pretty solid advice because anything that tracks the S&P 500 is typically going to perform well. Now that I am at my current big boy job, I started out the same way with 10% of my paycheck going straight to retirement savings. I had no idea that there was a whole other side of investing I could do with my money in my retirement accounts. I thought my contributions was all that I had, but BOY WAS I WRONG!!
My Current Portfolio
I have several different accounts that house my retirement savings. In some of these accounts I follow my advice and in others I don’t for one reason or another. My main retirement account is my 403b through my employer. I am unfortunately unable to invest all my contributions with VTSAX because that is not one of my options, therefore I have to choose something different. I have an 80/20 allocation in an S&P 500 fund and mid cap mutual fund respectively. I could choose to invest 100% in the S&P 500 fund but I decided to allocate a little differently just to get a little more volatility while I am still young in my investing career. My other main retirement account is where I actually took my advice. I opened a Vanguard brokerage account and invested my contributions in 100% VTSAX. Any extra savings I have at the end of the month goes into this account. Since I am still very new to investing I wanted to keep things as simple as possible based on previous knowledge of investing. I still know very little about investing luckily I have found the FIRE community and am starting to listen to some of the experts in the community.
FIRE Community Influences
Warren Buffett has a wonderful quote from his 2013 Berkshire Hathaway Annual Letter to Shareholders talking about where to invest money:
“My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.”
The advice from one of the world’s richest people in world is so astonishingly simple: if you have money invest it. While his advice strays a bit from what I am saying the theory is essentially the same. Investing in strictly VTSAX is an even more simplified version of what Warren Buffett says. However, the heart of the matter stays the same: any money you have should be invested! This advice is the same the FIRE community given as well. JL Collins Stock Series is a great resource and place to start. Millennial Revolution also has a wonderful free Investment Workshop that is ABSOLUTELY FREE! The started their workshop in October 2016 with a weekly post that tells you step by step how to start investing. These are some of the people that have influenced me to start investing. Who are some of the people in your life that you go to for financial advice? Let mes know in the comments below!
Steven | Rx for FIRE