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How’s it going guys so today i’m going to be showing you how to actually invest in index funds i’m gonna be giving you guys an overview of the vanguard platform of etfs that are available and showing you guys how you can invest both through an etf and exchange-traded fund or through the actual vanguard website now when i invest in index funds i do this through etfs
So i can’t actually show you the process of doing this on the vanguard website because that’s not how i invest in index funds i prefer to do it as the etf that way you can trade the individual shares so that’s just the way i do it it’s you know up to your preference and also how much you’re planning to invest initially but i’m gonna show you guys how you go about
You know navigating the website i did this in another video previously too but i’m gonna show you guys some new stuff we’re gonna go over an actual strategy of a plan that you could follow if you wanted to to invest in them a bond etf as well as a stock etf and then at the end of the video i’m gonna be switching my camera over and showing you guys the process on
The robin hood app of how to actually go about finding the etf on robin hood and where you would go to purchase it so i know i’ve mentioned this in a couple of videos previously but for those of you that have not seen those and etf is what we call an exchange-traded fund it basically allows you to invest in an index fund through individual share ownership so one
Of the main problems previously with funds in fact whether it be an index fund or a mutual fund is there are high barriers to entry because you need to fulfill a minimum account balance in order to open an account so i’m gonna show you guys what that is for vanguard and these funds but the good news is that with etfs you can start investing in these funds for the
Price of one share of ownership so let’s go ahead and start by just navigating this page here and i’m gonna link all this up in the description if you guys want to look more into this but these are the etfs that vanguard has available they’re currently have 56 different etfs they have bond etfs they have investment grade bonds tax-exempt bonds they have stock etfs
That are both large-cap mid-cap and small-cap they have some international etfs and then they also have some sector and speche the etf’s they have a real estate investment trust etf as well so i did a whole video talking about what are the best index funds to invest in i will go ahead and link that up at the end if you guys want to see that video it would be a
Good one that would complement the information and this one as well but what we’re gonna do is we’re gonna focus on two etfs in this video first of all we’re gonna look at blb which is the long-term bond etf available through vanguard and also vo o which is going to be once i find it here where is okay vo o is the s&p 500 etf so this fund tracks the performance
Of the s&p 500 and a lot and it basically allows you to have you know good exposure to a number of us stocks and it basically gives you diversification within that fund because you’re gonna have both large-cap mid-cap and small-cap stocks because it is a combination of the 500 largest companies on the us markets so when you go ahead and click on the etf we’re
Gonna start with blv it brings you over to this page right here it says vanguard long-term bond etf symbol blv so basically guys this is where you can learn about this fund learn more about what’s within this fund this is a great one that i recommend to people because due to the fact that it is a long-term etf you’re gonna have a slightly higher risk there so the
Returns gonna be better you have to remember that with bonds the higher the risk is the higher the return is going to be so for especially young people you can afford to be a little bit more aggressive especially with bonds so i recommend a well diversified long-term bond fund for young people and if you’re maybe an older person or you’re not as risk tolerant maybe
Go back over here on the etf list and look at a you know a shorter term bond etf or even a treasury bond etf that’ll be a lower return but significantly lower risk and you know less volatility so that’s always an option available to you but so when you go to the website here you see a message here that says also available as investor shares mutual fund so those
Are basically the two options when it comes to investing in this particular fund you can buy individual shares through an etf where you buy them on an exchange just like this dock or you can open up an account through vanguard now if you decide to do that you i clicked on this page here which all i did is click on the link here as investor shares and now we have
The vanguard long-term bond index fund which is going to be under the symbol vb ltx so this is an index fund you can invest in but you’re gonna invest in it through the vanguard website and the main reason that people oftentimes will not do this is this right here as you guys can see the minimum investment for this is three thousand dollars so you need at least
Three thousand dollars just to open up an account with vanguard and open up the the fund to buy the vanguard long-term bond index fund through their mutual fund rather than buying it through individual shares and there’s no real difference as far as the expense ratio or anything and if you guys are using robin hood which is what i use you’re not paying any fees to
Your broker for trading so there’s not really an advantage here to to having a fund through vanguard versus using your broker and doing an etf so it’s really up to you guys what route you want to go like i said i always go through the etfs it’s just easier for me to keep track of having stuff in one place and then if we go over here and look at the s&p 500 etf
Vo oh it’s a very popular fund it’s one that i recommend again this is the where you would go for the individual shares they’re under the symbol vo o and then if you click here and go to investor shares then as you can see again it’s a three thousand dollar minimum investment to buy into this fund if you wanted to invest through the vanguard website so i’m going
To be under the assumption that most of you guys are interested in investing through the etf option so that’s going to be the focus for the rest of this video the other thing is you also do have the option of investing through admiral shares admiral shares allow you to have a lower expense ratio because there is a much higher minimum investment they’re basically
Letting you take advantage of having a large account so because the account is larger the expense ratio is lower and as you guys can see for the admiral shares the minimum investment for this is ten thousand dollars instead of three thousand so but the expense ratio is lower over here it’s point zero four percent and we’ll go back and see what was on the other one
For the for the one with the lower minimum balance it’s a point one four percent so actually it’s a much lower expense ratio to go through the admiral shares but you would have to have you know ten thousand dollars minimum to get started with admiral shares through vein guards so that’s probably not something that’s going to be an option that makes sense for most
Of us so going forward we’re gonna look at the stock symbols okay so as we said v oo the vanguard 500 index fund you would just type in v oo and your stock broker app whatever you’re using or in google all i typed in was vo o stock and as you can see right now it’s trading at two forty five seventy five per share so what that means guys is you would need two forty
Five seventy five right now to invest in one share of bo o but that is a lot less than three thousand which would be your minimum amount for the other option and then for blv that long-term bond fund the symbol again blb i just typed in dlv stock and as you can see it is ninety four fifty nine per share so for less than a hundred dollars you can get started with
That long-term bond fund now one of the strategies i talk about often is dollar cost averaging that is the best strategy when it comes to investing in index funds because what you are doing is you’re accumulating shares over time and as a result you’re buying the same time and the same amount every single month so what happens is you buy shares up high you also
Buy shares down low and over a long period of time you’re paying the market average return for that ownership before that’s fund now i know this is probably something you guys i’ve heard of before if you’re familiar with my videos so i’m not gonna go into it at length i talked about this more in my other video that i’ll link up at the end but i want to give you
Guys an actual real-world example of how you would do this because i know it’s good to talk theory and the concepts but it’s better to actually see a real-world example so i’m gonna use an example of somebody who is looking to invest four hundred dollars a month following dollar cost averaging so let’s say every month on the 1st of the month or whatever the first
Trading day is of that month they’re going to invest their four hundred dollars and that’s going to be their dollar cost averaging strategy so let’s say this person is in their 30s they’re looking to have you know a pretty aggressive portfolio but they also want to have bond exposure so they’re looking to have 80% stock ownership and 20 percent bond ownership so
They’re gonna look at our two funds we talked about they’re the vanguard 500 fund b oh oh and then that long-term bond to etf blv so how would you go about getting 80% 20% diversity here where 80% to stocks and 20% disbands when you have to buy individual shares it’s gonna be a little bit tricky you guys are gonna have to do some math here to kind of figure this
Out and it’s never gonna be perfect you’re never gonna have exactly 80 percent ownership or 20 percent bonds because of the fact that the prices are always changing and when you’re buying individual shares it’s gonna be hard to get that ratio perfect now as you accumulate more shares over time you’re going to be able to do what is called rebalancing which is going
To be selling one thing to buy another just to keep your just to keep your diversification about the same so let’s say you had invested and you had an 80/20 split and then over the next six months your stocks went up more than your bonds did and you found that you had at that point ninety percent stocks and ten percent bonds well at that point what you would do is
Sell some of your shares of your stocks or in this case your vo o your stock fund the vanguard 500 fund you would sell a couple of shares of that and buy your bond fund that way you were back to an 80/20 split as far as rebalancing goes most people do it twice a year but the rule of thumb that i follow is anytime your portfolio is about 10% out of whack that is
What i rebalance so if you’re looking for an 80/20 split if you were ninety ten or 70/30 that is when i would rebalance and get back to 80/20 but you can also rebalance as you are adding to your portfolio just by adding the right number of shares and trying to keep your numbers about where they should be but if you’re looking to get started with an 80/20 split
Here what you would do is the first month you would buy one share of vo o and we’re assuming that vo o is 250 or share and blv is 100 shares just for easy numbers sake so as we said you have $400 each month to invest so the first month you’re only investing 250 or the cost of one share of the oo and you’re going to hold the other 150 as cash your account so now
You have a cash balance of 550 that following month after you make your contribution now you’re going to be investing in one share of vo o and one share of bl via the following month which is going to give you again a cash surplus at this point of two hundred dollars because it’s only going to cost you 350 roughly for one share of vo o and one share of blv now the
Following month you’re going to do the exact same thing by one share of vo o and one share of bl b and at this point you’ll have a cash surplus of about 250 now month number four you’re gonna buy two shares of vo o and one share of blv which is going to burn up a lot of the cash surplus giving you a $50 cash surplus month number five you’re gonna buy just one share
Of vo o giving you a $200 cash balance and then the sixth month you’re going to basically drain all of the cash value of your account and your contribution by investing in two shares of vo o and one share of blv so over the course of six months that is 2400 dollars invested following a dollar cost averaging type strategy and as a result you would have accumulated
Eight shares of vo o the vanguard 500 fund and four shares of blv that long-term bond etf so if we’re looking and we’re assuming about 250 is share four vo o that’ll be about a two thousand dollar investment in the vanguard 500 etf and a 400 dollar investment in the long-term bond etf which is going to give you that 20 percent bond eighty percent stock split there
And again this is in a perfect scenario like i said guys these prices are going to change but your goal is just to stay within about 10 percent of your ideal portfolio diversification so this is what you’re actually going to be doing number one you’re gonna need to figure out how much you want to invest each month number two you’re gonna figure out what funds you
Want to be involved with and then you’re gonna try to come up with a strategy to meet your diversification needs in the best way possible so it’s gonna take a little bit of math here this took me about ten minutes to figure out it wasn’t too bad but you guys have to understand you’re never going to get these numbers to be perfect so now we are going to jump over
To my camera and i’m going to show you guys how to look up these funds on the robin hood app alright guys so as you can see i now have my robin hood app open and i use robin hood right now as my primary account but i also still have the majority of my money over in scottrade so basically what you guys are going to do is obviously login type in your passcode which
I’m not going to share with you guys for obvious reasons and then you go over here to the search bar where you’re going to search for this and we’re going to first search for vo o so obviously just type in b oo on the keyboard and as we can see the vanguard s&p 500 etf comes up we go ahead and click on that and as we can see it’s now 242 90s share if you or
I’m sorry 245 83 after it updated and what you want to do is you’re gonna hit bye and this is where you would enter how many shares of the oo you would want to buy obviously i’m not going to be buying this right now and then you would just enter like let’s say you were gonna do two shares the estimated cost would be 490 168 when you hit review and then all you
Would have to do at this point is swipe up in order to purchase that which i’m not going to do and then i’ll just show you the same exact thing for the bond etf blv so again we just go to our search bar here type in b lv and here we have the vanguard long-term bond etf and this is currently trading at once it refreshes here i guess that one did its 94-68 per share
And same thing you would just hit buy at the bottom type in the number of shares you were looking to buy and then swipe up and your order will be filled in a matter of seconds at that point but uh yeah so that’s pretty much it guys that is how you would go about buying etfs on robin hood you can use many different brokers out there i recommend robin hood for people
In the us because it is a zero dollar commission cost zero dollar minimum account balance but i know a lot of people don’t have the option to use robin hood but if you do i would certainly recommend using that anyways guys that’s all i got for this video thanks for taking the time to watch it and i will see you in the next one
Transcribed from video
INDEX FUNDS FOR BEGINNERS: How To Buy ETFs on Robinhood! By Ryan Scribner