How do I determine the right investments that match my goals?

I am a 24 year old single male. I have set aside several thousand dollars that I would like to make a sound fiscal decision with. To keep it concise, my goal is to aggressively grow this money in order to provide as substantial as possible of a supplementary income stream in the coming years. I have a moderate-high tolerance for risk, and am planning on contributing to this account with a percentage of my salary. My understanding is that mutual funds are a great base to start, and I have found several that seem to align with my goals, however, I have no idea what the metrics are by which these are measured, thus, I have no idea what makes a "good" mutual fund. How should I proceed to invest?

Investing, Mutual Funds
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March 2017
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Congratulations for recognizing that you are looking to aggressively grow your money over the long-term and that you have a moderate-high risk tolerance. That's most of the battle. Over every long-term time horizon, stocks have provided the best returns. Given your age and risk tolerance, I suggest looking beyond our borders by considering an allocation to the emerging markets and Europe as well as the U.S. If you're feeling especially aggressive, the frontier markets which are countries that are emerging into the emerging markets.

There is no perfect allocation. However, I would certainly overweight the U.S. with at least 50% of your money. Even though I think the emerging markets may offer the highest return during the 2020s, I would still limit that allocation to 20% max unless they fell at least 25% first. Here are a few possible allocations.

- 50% U.S., 20% emerging markets, 15% Europe, 15% Japan

- 60% U.S., 20% Europe, 20% emerging markets

- 50% U.S., 10% emerging markets, 15% Europe, 15% Japan, 10% frontier markets

Regarding metrics, I would not complicate this nor worry too much about it. You can simply use the major indices for each market. In the U.S., that's the S&P 500. In Europe, it's the MSCI Europe. In Japan, it's the Nikkei. For frontier, it's the MSCI Frontier.

I would also use low cost index funds or exchange traded funds (ETFs) to express your allocation to each area of the world. Whether that's Vanguard or Fidelity or Ishares or State Street, you won't find huge differences.

Finally, I would choose a frequency to invest the money you have saved as well as future contributions. That's called dollar cost averaging or investing the same amount at regular time intervals. I would consider either monthly or quarterly.

March 2017
March 2017
March 2017
March 2017