Case Study: New to Investing

Case Summary

John has recently finished his studies, landed a new job and wants to begin putting some money to work in the market as well as pay down his student loans.


New investors need a way to invest small amounts of money on a regular basis without incurring large expenses and taking on unnecessary risk.  ETFs are a good solution.

One place to start is with a Total Market ETF which is a fund that eliminates most of the planning and research work by simply buying the entire stock market. Domestic, International and Global versions are available.

Another option is to go with a Target Allocation ETF.  A relatively recent innovation, these ETFs invest across asset classes such as stocks and bonds in fixed proportions and automatically rebalance on a regular basis. Different allocation targets are available depending on your risk appetite and investment horizon.

To avoid having commission costs eat into returns, new investors should look into one of the plans offered by discount brokers that enable small, regular investments at a low, fixed cost.

Portfolio Recommendations

Total Market

John should check out the Vanguard Total Stock Market ETF (VTI).  The $10 billion fund tracks an index that represents 99.5% of the U.S. stock market.  He will get instant diversification and a very low expense ratio of 0.07%.  He can add the rest of the world with the Vanguard FTSE All-World ex-US ETF (VEU). The fund tracks an index of 2,200 stocks of companies in 47 countries from both developed and emerging markets.

Target Allocation

For an investor with a long time horizon, like John, the PowerShares Autonomic Growth NFA Global Asset Portfolio (PTO) is a good start.  The fund is an “index of ETFs” that takes on a growth risk profile of 90% stocks and 10% taxable fixed income.  The fund is rebalanced at least quarterly to maintain the 90/10 mix.

Fixed cost investment program

John should also look into  The discount broker offers investors an automatic investment plan that charges just $4 for trades or gives you 20 free trades per month for a $20 subscription fee.