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S&P 500 Index Funds vs Individual Stocks || Stock Market Investing for the COMPLETE BEGINNER. In this video we are talking about the benefits of investing in index funds, specifically an S&P 500 index fund, versus individual stocks.
We will talk about diversification in an index fund as well as how index funds in the past have outperformed actively managed mutual funds. We will also talk about how to start investing in S&P 500 index fund today.
I do both, just in case I’m either more or less stupid than i think i am
THANK YOU for watching and for leaving your $0.02 in the comments! 😎👍🏻
Great video man! ETFs are a great way to instantly diversify so a great option for beginner investments 😄
Absolutely! Thank you for watching and for leaving your $0.02 in the comments! 😎👍🏻
Here’s a question. A 60 year old widow that is pulling SSDI because of a disability and widow’s SSI for about 1700 a month. No other debts or assets. She gets a $80,000 payment for a settlement. What types of funds/bonds would be best for some extra income?
If it is dividend payments you are looking for over growth, there are a couple of ways you could do it, but you would also want to keep tax treatment in mind.
The Vanguard Total Bond Index such as VBTLX (Mutual Fund Ticker) or BND (ETF Ticker) are fairly stable high dividends, but low growth. The dividends they produce are classified as “Interest” and therefore must be taxed at ordinary income rates rather than the lower qualified dividend rates. So If you can have them in a Roth account, that would be best.
The Vanguard Real Estate Index such as VGSLX (Mutual Fund Ticker) or VNQ (ETF Ticker) is a composition of hundreds of Real Estate Investment Trusts (REITs). REITs have some very nice high dividends, but are not as stable as bonds. Their dividends are classified as “Distributions” and are taxed at ordinary income rather than qualified dividends, just like bonds. So it is also best to have these in a Roth account if possible.
Most other dividends such as the Dividend Appreciation Index VDADX (Mutual Fund Ticker) or VIG (ETF Ticker) have qualified dividends that have shown to historically increase each year. The income yields are typically not as high as Bonds or REITs, but their dividends are taxed at qualified dividend rates rather than ordinary income rates, which is awesome!
There are many other things to consider when diversifying your portfolio as well, such as: International Indexes will typically have more dividends than US indexes, but have much less growth potential (at least, historically). Real estate, bonds, and stocks are all different types of investment fields, and it could be good to have some exposure to different types. For tax purposes, you’d want to research which funds/ETFs have qualified dividend treatments and which don’t. If they do NOT have qualified dividend treatment, they are probably best held in a Roth account. If they DO have qualified dividend treatment, they are probably best held in a taxable brokerage or Roth account, but NOT in a traditional IRA/401(k). This is because ALL distributions from traditional retirement accounts are taxed at ordinary income. So even if you have qualified dividends being distributed in those accounts, you’d be paying MORE TAXES than simply having them in a taxable brokerage account.
Something that might help is to take a look at Vanguard’s list of ETFs/Index Funds. If you google “Vanguard ETF Qualified Dividends” you should be able to find a list of all of their ETFs, with a summary of how much of each fund distributed qualified dividends.
https://advisors.vanguard.com/VGApp/iip/advisor/csa/investments/taxcenter/yearendfigures
How does putting the max 7k catch up in a Roth IRA then the rest into a taxable account sound? Then sell 7k each year from the taxable at long term capital gains to put into the Roth.
@Daniel Gordon Unfortunately, you can’t make any contributions to a Roth IRA if you do not have an earned taxable income during that year. You also cannot contribute more than what you make during that year. What some retirees choose to do is find some low-stress part time work during their retirement years so they can do what you have suggested, but that might not be for everyone. There is also the age limit of 72 in which you can no longer contribute.
There are some other ways to move money over to a Roth IRA, such as converting an old 401(k) or other similar employer-sponsored retirement program.
I would like to clarify, Daniel, that I am not a CPA or financial advisor. I am just someone who really likes learning these things for myself. I hope the info I’ve given is helpful, but I wouldn’t blindly follow some guy from the internet. I would highly suggest that you take your case to a CPA or tax professional that can sit down an look at your particular finances in detail. They would have a much more accurate plan for how you can maximize your retirement than someone like me. Hope this helps!
THIS IS A FANTASTIC QUESTION DANIEL — There are definitely a few questions to consider here BEFORE options can be presented:
1. How much risk is she open to taking?
2. How much extra income does she need?
3. Would she need to use these assets for anything or can she leave them invested and throwing off income for her?
I am certainly a BIG BELIEVER in dividend stocks for the income it can produce on an increasing basis, but I also am 33 years old and don’t need the assets producing the income any time soon. It could be that investing in bonds or a bond fund for safety may be best for her. IF she was comfortable with a lot more risk she could have a portfolio with REIT’s and MLP’s along with closed end funds which could spin off 10% + yield and a lot more income than the bond funds.
*** THIS IS NOT PERSONAL ADVICE FOR HER SITUATION – I AM NOT A FINANCIAL ADVISOR ***
If you were thinking of bond funds you could get a low cost bond funds from Vanguard but there are plenty of options. You could also get instant dividend diversification by owning a Dividend ETF. Sorry if I didn’t directly answer your question. =) THANK YOU for watching and for leaving your $0.02 in the comments. =)
Average Joe on Money thanks for the input. I’ve taken a finance class or two and am somewhere in the “know enough to be dangerous” realm. I learn everyday and appreciate you being so active in your comment sections. It’s fun to bounce ideas off of others as well, as iron sharpens iron.
Remember that if you plan to invest into a *taxable* account, ETFs are more tax efficient than mutual funds.
But for my Roth, I actually prefer the mutual funds. (Index funds are a *type* of mutual fund, not sure if you mentioned that or not.)
HANK YOU for weighing in Bryan. Yes, ETF’s are more tax efficient and I didn’t mention it in this video but I have in others. For a beginners video it would have taken time to break down. Thank you for watching and for leaving your $0.02 in the comments! 😎👍🏻
I just want to say, thank you. You are very helpful and easy to follow.
THANK YOU for that feedback and for watching/leaving your $0.02 in the comments. I appreciate it! 😎👍🏻
I’m thinking of opening a Roth would VOO VTI or VTSAX be better?
GREAT QUESTION — If you have are opening the account directly with Vanguard you could choose any of them and be just fine though you would need $3,000 to start investing in VTSAX. If you are doing it with any other broker than either VTI or VOO is good. I choose VOO personally. Thank you for watching and for leaving your $0.02 in the comments! 😎👍🏻
VTI is cheaper and easier to get started with if you don’t have $3k for VTSAX’s initial investment. Both VTI and VTSAX are more diverse than VOO. However, VOO performs better when the economy is at its worst and at its best.
You didn’t say whether the index fund pays quarterly or monthly? Why does that matter? if you use the fund as income it does. I had to quit early before I had to semi-retire. How do you try and live off of a paycheck every 3 months? you can plan stocks to pay every month and the income can be used as income. Is there risk but every investment has some risk. Limiting the risk is what it is all about. I use this downturn to buy and focus on what companies
Great video! ETFS like VOO, SCHX, IVV, VOOG, or SCHG are all safe and have average to above average growth.
YOU ARE RIGHT MR. BERRY! THANK YOU for watching and for always leaving your $0.02 in the comments! 😎👍🏻
If the Index Funds is more hassle then the ETF than why do people buy Index Funds? Is one more safer then the other? Could any of them contain fraudulent activity?
GREAT QUESTION — The ETF and Index Funds invest in the same assets and neither one is safer than the other. Index Funds make it easier to invest on a recurring basis by directly pulling money from your bank account and simplifying the ability to invest every month for the Average Joe. ETF’s make it easier to buy the funds throughout the trading day and can be more tax efficient as well. I would not be worried about fraudulent activity. Hope that helps. THANK YOU for watching kokalti and for leaving your $0.02 in the comments! 😎👍🏻
This is GREAT content for beginners.. thank you Joe!
THANK YOU for that feedback Stacy and for leaving your $0.02 in the comments — I appreciate it! =)
So informative. Thanks much for sharing your knowledge!
Glad it was helpful Yang! THANK YOU for watching and for leaving your $0.02 in the comments! 😎👍🏻
Hey Joe! Stumbled across your videos and now I’m binge watching all of them! So I have two questions. The first is, how many stocks or index funds should I actually invest in? Then once I’m invested how many shares should I have? Does it matter? Does it help me? Let me know thanks!!!
Wow, thanks Todd! =) What you invest in is going to heavily depend on what your goals and time horizon is. FOR EXAMPLE, my Roth IRA and 401k is 100% invested in Vanguard Index Funds and I don’t need the money until age 59.5 when I can access it without tax consequences. I also have a dividend stock portfolio that I invest 100% in individual dividend stocks that I have vetted for quality/safety and this money I would like to start accessing (the dividends at least) in the next 5 years. If you are thinking Index Funds then I would say you may only need 1-3 depending on your level of risk and the number of years until you need the money. Personally, I use the Vanguard S&P 500 ETF (VOO) and I also own the Vanguard Mega Cap Growth ETF (MGK) as well as a smaller portion in Vanguard’s IT Sector ETF and Mid/Small Cap Index Funds. I hope that helps and I am more than happy to answer any follow-up questions you might have! THANK YOU for watching Todd and for leaving your $0.02 in the comments! 😎👍🏻
GOOD JOB BRO!!!!
Doesnt warren buffet beat the s&p 500?
What will be the best investment allocation between individual stocks vs index funds vs etfs with 500k investment ?
Thank you for the info really helped my make my final decision!
i like to put most of my money in voo but i like investing in companies i love like Apple nvidia amd NEE SQ and others
THANK YOU for watching Tyson and for leaving your $0.02 in the comments! 😎👍🏻
Very informative video, great work.
Glad you liked it! =) THANK YOU for watching and for leaving your $0.02 in the comments! 😎👍🏻
Great information for beginners, thanks
THANK YOU for that feedback Juan and for watching/leaving your $0.02 in the comments. I appreciate it! 😎👍🏻
I’m new but trying to learn and get into it…. Would it be worth or a waste for example to buy an ETF and also invest individually in certain other stocks even tho there already a part of the ETF or should it be just constant investing in just one ETF?