Question:  I have some amount of money that I would like to turn into more money.  How should I invest it?

Side Note:  I’m pretty lazy and don’t want it to take up a lot of my time.

Answer:  You should invest in Vanguard VTSMX.

How to invest post over.  Phew that was really easier than I thought.

For those of you more curious as to why you should invest in Vanguard VTSMX I will explain in further detail and also ask/answer a few more questions.

Why Vanguard VTSMX?

Mostly, because we use Vanguard, so it’s what I’m most familiar with.  Charles Schwab seems like it would also be a great option.  I don’t invest with Charles Schwab so for this article I’ll show you how to invest with Vanguard.

Vanguard in general tends to have the lowest fees across the board.  There are several other places to hand over your money.  You could use Charles Schwab, they have comparably low fees too or you could give me your money.  One of those would be a perfectly acceptable substitute for Vanguard but I don’t want to give too many options and confuse the masses so I’m sticking with Vanguard.

There are several great Vanguard funds to pick from depending on your risk tolerance/expense ratio but this is for people who just want a simple way to invest.  Eventually, you may want to branch out and pick a few more funds but that will happen organically.  Once you get the hang of investing with Vanguard VTSMX it’s pretty easy to see what other funds they have.  My advice is to start simple.

What’s the difference between Vanguard VTSMX and VTSAX?

These are the same funds, the only difference is the expense.  Vanguard VTSMX is the name of the fund when you have between $3,000 (the minimum to invest in this fund) and $9,999.  Once you reach the $10,000 mark Vanguard automatically switches you to its admiral shares, hence, VTSAX.  The A stands for Admiral, see?  The benefit of hitting that 10K amount is the fee goes from .12% per year to .04%.  This is a fun benefit because you get to keep more money.

Update: Vanguard recently changed the amount so that the admiral shares are available at $3000 instead of $10,000.  Hooray!

Vanguard is great because their fees are already super low.  Many financial advisors charge 1-2% or even higher.  Even at the VTSMX level Vanguard is only charging about 12 one-hundredths of one percent.

How is Vanguard able to charge so little?

Vanguard uses lots of black magic and I think they sacrifice some goats once every three months.  Also, you aren’t paying for someone to actively manage your account.  The VTSAX/VTSMX are Vanguard Total Stock Market Funds which means you have a small slice of basically the entire US economy. Nobody is looking to constantly buy and sell shares in order to beat the market so you don’t have to pay high fees.  The goal of this fund is to basically win with the market.

You won’t get rich overnight with this approach but you will end up with more money than if you tried to beat the market on your own by guessing which stocks will take off. You’ll also end up with more money than if you gave your money to someone else who tried to do the same thing.

 Warren Buffett once won a 2 million dollar bet with hedge fund managers.  The basic bet was over 10 years who would have more money. Warren Buffett by investing in low cost index funds or fancy hedge fund managers picking stocks and trying to time the market.  Spoiler alert: Warren Buffett and index funds far outperformed the fancy hedge fund managers.  

See also: Warren Buffett Hedge Fund Manager Bet

 

How do you set this up?

1. Save $3000. Don’t worry about how long this takes.  You need $3,000 to start with this Vanguard fund.  It will be well worth it.
2. Go to http://investor.Vanguard.com/home/ and click on “open an account” in the top right corner. Follow their instructions.  It’s pretty easy.  They have great customer service too for if/when you get confused.
3. Choose the fund with the ticker symbol VTSMX.
4. Add more money to the fund whenever you can.  After you reach your initial $3,000 you can add any amount you want.  You don’t have to add money in $3,000 increments.
5. Check back once every month or two to see how your investment is growing.
6. Buy and hold.  Don’t panic when the market goes down.  It will go down from time to time.  It will also go back up.  Even if your investments have fallen 50%, don’t panic and sell.  If you feel like panicking and selling read How to Breathe Away Anxiety. It will calm you down and keep you from foolishly selling when the market is down.  You’re investing for the long-term.
7. Download the Free App “Personal Capital” and sink all your accounts to it.  Personal Capital allows you to quickly see your net worth, debts, investments, etc.  all in one place.

Related:

How Investment Fees Are Keeping You Poor

Ten Years From Now You May as Well Be Ten Years Ahead

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