Let’s Start at the Beginning, a Very Good Place to Start

One of the few ideas we’ve enacted that I can claim to have come up with myself is a risk rotation system. The idea (as I originally presented it) was that we would each year have three risk levels: Safe months (where we would invest in a broadly based index fund); medium risk months (where we would invest in a well known individual company in good shape); and high risk months, where we would invest in something crazier.

In truth, mainly due to our lack of research skills we haven’t been that comfortable taking bigger risks and we’ll probably wait on that until we have learned more about judging a company’s quality (reading 10-q and 10-k reports/balance sheets).

So after we accepted this plan the first investment decision we had to make was what we would use as our broad based index fund. We ended up deciding on VTI, for a number of reasons, mostly related to the super broad base “The fund employs a passive management strategy designed to track the performance of the MSCI US Broad Market index, which consists of all the U.S. common stocks traded regularly on the NYSE, AMEX, or OTC markets”, the super low expense ratio of .07%, and the low turnover rate of 4% annually.

In addition to those concrete reasons I have a fault of pushing companies more for their historic value, which unfortunately doesn’t speak too well to their future performance. I’m a big fan of John Bogle, as a result I not only wanted to go with a Vanguard index fund, but I wanted to go with one that was about as diverse as could be.

To date the only problem with VTI was that the high per share price often meant we had to make slightly smaller investments in it leaving a little extra money sitting around. This was enough of an issue (given the already small size of our investments) that we discussed for a while the possibility of switching index funds, but when VTI split that ended that discussion.

Here are a few of links about VTI:

https://personal.vanguard.com/us/FundsSnapshot?FundId=0970&FundIntExt=INT
http://caps.fool.com/Ticker/VTI.aspx?source=ifltnvsnq0000004