Risk Adjusted Return is the single most important concept to investing that will make you be "smart Susan" and not "dumb Dan". The Shockingly Simple Math Behind Early RetirementĬompounding is a wonderful thing, but you don't want to make yourself too dependent on it. they hold stocks of more than just a few companies).Īssuming your investment is at least semi-diversified, the percentage of your income that you invest is the more important factor, as Mr. But any of the 3 is at least somewhat diversified (i.e. Wellington would be better diversified because of the bonds in the portfolio whereas the other two funds don't own any bonds. More important than where you invest your money, is the fact that you actually invest in something reasonably broad based / diversified. Once again, we can't know if this will be true in the future, but it has been true historically. But falling less in bad times tends to more than make up for the underperformance in good times. They usually hold up better in bad times but don't do as well in good times. Dividend Strategies tend to outperform over long periods of time (like 30 or 40 years). But its returns will probably be at least a little bit lower over that time frame.Īnother good option would be something like Vanguard Dividend Appreciation Index (VDAIX). A fund like Vanguard Wellington is less volatile and therefore easier to stick with for 30 or 40 years. If you can't stick with the S&P 500 stock index, then you will very likely sell low and buy back in again at a high price, exactly the opposite of what you're supposed to do. Even if the returns aren't as good, you'll get better returns with the fund you actually stick with. That's because most people (especially men) overestimate what they can really handle. Overall, I recommend a slightly less volatile fund like Vanguard Wellington (65% stocks 35% bonds). Can you handle that? Most people don't really know what they can handle until after it happens. Can you handle your retirement fund balance dropping by 37% as the S&P 500 index did in 2008? From the beginning of the bear market in late 2007 until March 2009, it dropped 55%. The S&P 500 has had good returns (10.9%) over the last 40 years, but it has done so with a lot of volatility. Most mutual funds underperform the S&P 500 because of the high fees they charge. We can say over the last 40 years, the S&P 500 stock index has performed well. You're asking us what will be best in 30 or 40 years. If I don't continue to add anything to it, will I still have more in the end (after 30-40 years), or is there a chance that it will be less, or even that I'll lose it all? I'm reading everywhere that SP500 is the lowest risk, and Vanguard is better than Fidelity in terms of not having to manage as much, but I wanted to consult.
Is Vanguard's 500 Index Funds the best option for long-term compound interest growth, if planning for retirement in 30-40 years? Particularly if looking for the most hands-off approach with little to no management on my part. As sole proprietor, once I max out my Solo 401k (which I guess I should do first, right?) I need to invest some money that's lying around doing nothing into something. So I don't want to be the dumb Dan, and I want to be the smart Susan.