How to Invest in a Diversified Portfolio
If you’ve chosen one of the diversified portfolios I have discussed, you might be wondering how you can begin investing for your goals. I highly recommend using Vanguard to invest if at all possible. This could mean investing directly through Vanguard or buying their mutual funds in your retirement or brokerage accounts. Why Vanguard? They are by far the lowest-cost provider of Index Funds in the industry. Additionally, they have a long track record of great customer service. If you invest directly through Vanguard, you can avoid commissions and many other fees (especially if you sign up for their e-delivery option).
So which Vanguard funds should you use to replicate the diversified portfolio you have chosen? Here’s the list (starting at the top and going around clockwise on the pie charts I’ve created):
| Fund Name | Fund Symbol | Expense Ratio |
|---|---|---|
| Vanguard Total Stock Market Index | VTSMX | 0.15% |
| Vanguard Value Index | VIVAX | 0.20% |
| Vanguard Small Cap Index | NAESX | 0.22% |
| Vanguard Small Cap Value Index | VISVX | 0.22% |
| Vanguard REIT Index | VGSIX | 0.20% |
| Vanguard Total International Stock Index | VGTSX | 0.27% |
| Vanguard International Value | VTRIX | 0.43% |
| Vanguard Short-Term Bond Index | VBISX | 0.18% |
| Vanguard Intermediate-Term Bond Index | VBIIX | 0.18% |
If you do not have enough money to meet the minimum investment amount for the portfolio you’ve chosen (so you can meet the fund minimums), then I recommend using one of Vanguard’s Target Retirement Funds until you have enough money in your account to implement the diversified portfolio you have chosen. You can view all of Vanguard’s Target Retirement Funds and find out more information here. You’ll need $3,000 to get started in one of Vanguard’s Target Retirement Funds.
If you don’t have $3,000, you can begin investing in Vanguard’s STAR Fund with only $1,000. I’m not a huge fan of the STAR Fund for several reasons, but I’m using it myself until I get $3,000 in my Roth IRA to invest in the Vanguard Target Retirement 2050 Fund. Once my Roth IRA reaches $38,000, I’ll switch over to the diversified 100% Stock portfolio.
If you don’t have $1,000 yet, I suggest you begin setting aside money every month in a high-yield savings account until you get there. I would recommend using The ING DIRECT Orange Savings Account. Great rates, no fees, no minimums. I personally use ING DIRECT and have had great satisfaction with their rates and service. Once you get to $1,000, you can open an account with Vanguard and begin investing in the Vanguard STAR Fund.
(Note: I do not work for Vanguard and gain nothing if you decide to use them except for the satisfaction of knowing I have helped someone save a ton of money and invest wisely at the same time. For full disclosure, I do get a commission if you sign up with ING DIRECT using the link I provided above. However, I would recommend them regardless of whether I receive any compensation. Click here to go directly to ING DIRECT’s website if you don’t want me to earn a commission when you sign up.)
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