Long term investing alternative to mutual funds
"Typically mutual funds will report an annualized return. It's probably an average of 8% per year from the date of inception of the fund. That at least gives some basis of comparison if you're looking at funds of different ages (they will also often report annualized 1-, 3-, 5-, and 10- year returns, which are probably better basis of comparison since they will have experience the same market booms and busts...).  So yes, generally that 8% gets compounded yearly, on average. At that rate, you'd get your investment doubled in roughly 9 years... on average... Of course, ""past performance can't guarantee future results"" and all that, and variation is often significant with returns that high. Might be 15% one year, -2% the next, etc., hence my emphasis on specifying ""on average"". EDIT: Based on the Fund given in the comments: So in your fund, the times less than a year (1 Mo, 3 Mo, 6 Mo, 1 Yr) is the actual relative change that of fund in that time period. Anything greater is averaged using CAGR approach. For example. The most recent 3 year period (probably ending end of last month) had a 6.19% averaged return. 2014, 2015, and 2016 had individual returns of 8.05%, 2.47%, and 9.27%. Thus that total return over that three year period was 1.0805*1.0247*1.0927=1.21 = 21% return over three years. This is the same total growth that would be achieved if each year saw consistent 6.5% growth (1.065^3 = 1.21).  Not exactly the 6.19%, but remember we're looking at a slightly different time window. But it's pretty close and hopefully helps clarify how the calculation is done." You are not limited in these 3 choices. You can also invest in ETFs, which are similar to mutual funds, but traded like stocks. Usually (at least in Canada), MERs for ETFs are smaller than for mutual funds.
"One alternative to bogleheadism is the permanent portfolio concept (do NOT buy the mutual fund behind this idea as you can easily obtain access to a low cost money market fund, stock index fund, and bond fund and significantly reduce the overall cost).  It doesn't have the huge booms that stock plans do, but it also doesn't have the crushing blows either.  One thing some advisers mention is success is more about what you can stick to than what ""traditionally"" makes sense, as you may not be able to stick to what traditionally makes sense (all people differ). This is an excellent pro and con critique of the permanent portfolio (read the whole thing) that does highlight some of the concerns with it, especially the big one: how well will it do in a world of high interest rates?  Assuming we ever see a world of high interest rates, it may not provide a great return. The authors make the assumption that interest rates will be rising in the future, thus the permanent portfolio is riskier than a traditional 60/40.  As we're seeing in Europe, I think we're headed for a world of negative interest rates - something in the past most advisers have thought was very unlikely.  I don't know if we'll see interest rates above 6% in my lifetime and if I live as long as my father, that's a good 60+ years ahead. (I realize people will think this is crazy to write, but consider that people are willing to pay governments money to hold their cash - that's how crazy our world is and I don't see this changing.)" No, CFD is not viable as a long term trading strategy.  You have a minimum margin to maintain, and you are given X days to top up your margin should you not meet the margin requirements. Failure to meet margin requirements will result in a forced sell where you are no longer able to hold onto the stock. A long term trading strategy is where you hold onto the stock through the bad times of the company and keep it long enough to see the good times. However, with CFD, you may be forced to sell before you see the good times. In addition, you incur additional lending charges (e.g. 4%-6%) for the ability to leverage. "I'm not following what's the meaning of ""open a mutual fund"". You don't open a mutual fund, you invest in it. There's a minimum required investment ($2000? Could be, some funds have lower limits, you don't have to go with the Fidelity one necessarily), but in general it has nothing to do with your Roth IRA account. You can invest in mutual funds with any trading account, not just Roth IRA (or any other specific kind). If you invest in ETF's  - you can invest in funds just as well (subject to the minimums set). As to the plan itself - buying and selling ETF's will cost you commission, ~2-3% of your investment. Over several months, you may get positive returns, and may get negative returns, but keep in mind that you start with the 2-3% loss on day 1. Within a short period of time, especially in the current economic climate (which is very unstable - just out of recession, election year, etc etc), I would think that keeping the cash in a savings account would be a better choice. While with ETF you don't have any guarantees other than -3%, then with savings accounts you can at least have a guaranteed return of ~1% APY (i.e.: won't earn much over the course of your internship, but you'll keep your money safe for your long term investment). For the long term - the fluctuations of month to month don't matter much, so investing now for the next 50 years - you shouldn't care about the stock market going 10% in April. So, keep your 1000 in savings account, and if you want to invest 5000 in your Roth IRA - invest it then. Assuming of course that you're completely positive about not needing this money in the next several decades." There is a difference between trading which is short term focussed and investing which is longterm focussed. On the long term what drives stock prices is still the overall economy and the performance of the underlying business aspects. I do not think that any trading algorithms will change this. These are more concerned with short term profits regardless of the underlying business economics. Therefore I think that longterm investing using index funds is still a viable strategy for most private investors. One year is short term -- short enough that trying to predict returns is a crap shoot. Frankly, if you will need the money in one year I wouldn't touch anything riskier than a money market account. $5000 also isn't enough to give you much flexibility in achieving a balanced portfolio, since the minimal initial purchase for mutual funds is often around $2500. (I'm not sure whether ETFs would give you any more flexibility.) So on grounds of both size and time horizon, I have to recommend against this plan. The risk of losing money, with insufficient time for gains to balance that risk, is simply too high. Others may feel differently, of course. But that's the best advice I can offer. If you want to invest in the stock market, whether over a shorter period of 1 to 2 years or over a longer period of 10 or 20 years or longer you need to take some precautions and have a written investment plan with a risk management strategy incorporated in your plan. Others have said that 1 to 2 years is too short to invest in the stock market as the stock market can have a correction and fall by 50%. But it doesn't matter if you invest for 1 year or if you invest for 50 years, the stock market can still fall by 50% just before you plan to withdraw your funds. What you need to figure out is a way to get out before the market falls by 40% to 50%. A simple way to do this is to use technical indicators to warn you when a market trend is starting to change and that it is time to get out of the market. Two simple indicators you can use on a market index are the Rate of Change (ROC) indicator and the 100 week Moving Average (MA). Below is a 10 year weekly chart of the S&P500 with these two indicators charted. They show good times to get into the market and good times to get out.  If you are using the 100 week MA you would buy in when the price crosses above the MA line and sell when the price crosses below the MA line. If you are using the ROC indicator you would buy in when the ROC indicator crosses above the zero line and sell when the ROC indicator crosses below the zero line. So your investment plan could be to buy an Index ETF representing the S&P500 when the ROC moves above zero and sell when it crosses below zero. You can also place a trailing stop loss of 10% to protect you in case of a sudden fall over a couple of days. You can manage your investments in as little as 10 minutes per week by checking the chart once per week and adjusting your stop loss order.  If you want to progressively add to your investment each month you could check the charts and only add any new funds if both the ROC is above zero and sloping upwards. Another option for adding new funds could be if the price is above the MA and moving further away from the MA. All these rules should be incorporated into your investment plan so that you are not basing your decisions based on emotions. There are many other Technical Analysis Indicators you could also learn about to make better educated decisions about your stock market investments. However, what I have provided here is enough for anyone to test over different indexes and time frames and do their own paper trading on to gain some confidence before placing any real money on the table. Do not use a stop loss order as a long-term investor.  The arguments in favor of stop losses being presented by a few users here rely on a faulty premise, namely, that there is some kind of formula that will let you set your stop such that it won't trigger on day-to-day fluctuations but will trigger in time to protect you from a significant loss in a serious market downturn.  No such formula exists.  No matter where you set your stop, it is as likely to dump you from your investment just before it begins climbing again as it is to shield you from continued losses.  Each time that happens, you will have sold low and bought high, incurring trading fees into the bargain.  It is very unlikely that the losses you avoid in a bear market (remember, you still incur the loss up until your stop is hit; it's only the losses after that that you avoid) will make up the costs of false alarms. On top of that, once you have stopped out of your first investment choice, then what?  Will you reinvest in some other stock or fund?  If those investments didn't look good to you when you first set up your asset allocation, then why should they look any better now, just because your primary investment has dropped by some arbitrary[*] amount?  Will you park the money in cash while you wait for prices to bottom out?  The market bottom is only apparent in retrospect.  There is no formula for calling it in real time. Perhaps stop loss orders have their uses in active trading strategies, or maybe they're just chrome that trading platforms use to attract customers.  Either way, using them on long-term investments will just cost you money in the long run.  Forget the fancy order types, and manage your risk through your asset allocation.  The overwhelming likelihood is that you will get better performance, and you will spend less time worrying about your investments to boot. [*] Why are the stop levels recommended by the formulae invariably multiples of 5%?  Do the market gods have a thing for round numbers? "MD-Tech's answer is correct. Let me only point out that there are easier ways to invest in the DJIA index without having to buy individual stocks. You can buy a mutual fund or ETF that will track the index and your return will be almost identical to the performance of the underlying index. It's ""almost"" identical because the fund will take a small management fee, you will have to pay annual taxes on capital gains (if you hold the investment in a taxable account), and because the fund has to actually invest in the underlying stocks, there will be small differences due to rounding and timing of the fund's trades. You also ask: Assuming that I calculated those numbers correctly, is this gain   approximately better, equal to, or worse than an average investment   for that timespan? While people argue about the numbers, index funds tend to do better than average (depends on what you call ""average"", of course). They do better than most actively managed funds, too. And since they have low management fees, index funds are often considered to be an important part of a long-term investment portfolio because they require very little activity on your part other than buying and holding." "If by saying you wish to invest ""for the long term 5-10 years"" I take it you mean to hold a stock for between 5-10 years. If this is the case, this is the fundamental flaw in your screening algorithm. No company stock price continues to go up without end for 5-10 years. The price of every company's stock goes down at some point. You have to decide on a company by company basis whether you want to ride out the downturn or sell and get out. This is a personal decision based on your own research. The list of screening criteria you list indicates you are looking for solid earnings companies. Try not to apply these rules rigidly because every company runs through a rough patch. At times past, GE (for example) met all of your criteria. However, in 2017, it would not and therefore would not meet your screening criteria. Would you sell GE if you owned it? Maybe, or maybe you would hold through the downturn. The same be said for MSFT in 2010 or AAPL pre-Jobs return. A rule you may want to add to your list: know the company business well; that is, don't invest in companies you have no understanding of their business model." Short-term to intermediate-term corporate bond funds are available. The bond fund vehicle helps manage the credit risk, while the short terms help manage inflation and interest rate risk. Corporate bond funds will have fewer Treasuries bonds than a general-purpose short-term bond fund: it sounds like you're interested in things further out along the risk curve than a 0.48% return on a 5-year bond, and thus don't care for the Treasuries. Corporate bonds are generally safer than stocks because, in bankruptcy, all your bondholders have to be paid in full before any equity-holders get a penny. Stocks are much more volatile, since they're essentially worth the value of their profits after paying all their debt, taxes, and other expenses.  As far as stocks are concerned, they're not very good for the short term at all. One of the stabler stock funds would be something like the Vanguard Equity Income Fund, and it cautions: This fund is designed to provide investors with an above-average level   of current income while offering exposure to the stock market. Since   the fund typically invests in companies that are dedicated to   consistently paying dividends, it may have a higher yield than other   Vanguard stock mutual funds. The fund’s emphasis on slower-growing,   higher-yielding companies can also mean that its total return may not   be as strong in a significant bull market. This income-focused fund   may be appropriate for investors who have a long-term investment goal   and a tolerance for stock market volatility. Even the large-cap stable companies can have their value fall dramatically in the short term. Look at its price chart; 2008 was brutal. Avoid stocks if you need to spend your money within a couple of years. Whatever you choose, read the prospectus to understand the risks. Why wouldn't you expect a long-term profit?  Say you buy 100 shares of company X, selling for$1/share today.  You hold it for 20 years, after which it's worth $10/share (in inflation-adjusted dollars).  So you've made a profit, only making two trades (buy & sell).  What the algorithmic traders have done with short-term trades during those 20 years is irrelevant to you. Now expand the idea.  You want some diversification, so instead of one stock, you buy a bit of all the stocks on whatever index interests you, and you just hold them for the same 20 years.  How has what the short-term traders done in the intervening time affected you? I traded futures for a brief period in school using the BrokersXpress platform (now part of OptionsXpress, which is in turn now part of Charles Schwab). They had a virtual trading platform, and apparently still do, and it was excellent. Since my main account was enabled for futures, this carried over to the virtual account, so I could trade a whole range of futures, options, stocks, etc. I spoke with OptionsXpress, and you don't need to fund your acount to use the virtual trading platform. However, they will cancel your account after an arbitrary period of time if you don't log in every few days. According to their customer service, there is no inactivity fee on your main account if you don't fund it and make no trades. I also used Stock-Trak for a class and despite finding the occasional bug or website performance issue, it provided a good experience. I received a discount because I used it through an educational institution, and customer service was quite good (probably for the same reason), but I don't know if those same benefits would apply to an individual signing up for it.  I signed up for top10traders about seven years ago when I was in secondary school, and it's completely free. Unfortunately, you get what you pay for, and the interface was poorly designed and slow. Furthermore, at that time, there were no restrictions that limited the number of shares you could buy to the number of outstanding shares, so you could buy as many as you could afford, even if you exceeded the number that physically existed. While this isn't an issue for large companies, it meant you could earn a killing trading highly illiquid pink sheet stocks because you could purchase billions of shares of companies with only a few thousand shares actually outstanding. I don't know if these issues have been corrected or not, but at the time, I and several other users took advantage of these oversights to rack up hundreds of trillions of dollars in a matter of days, so if you want a realistic simulation, this isn't it.  Investopedia also has a stock simulator that I've heard positive things about, although I haven't used it personally. "A lot of people have already explained that your assumptions are the issue, but I'll throw in my 2¢. There are a lot of people who do the opposite of long term investing.  It's called high frequency trading.  I'd recommend reading the Wikipedia article for more info, but very basically, high frequency traders use programs to determine which stocks to buy and which ones to sell. An example program might be ""buy if the stock is increasing and sell if I've held it more than 1 second.""" "My original plan was to wait for the next economic downturn and invest   in index funds. These funds have historically yielded 6-7% annually   when entered at any given time, but maybe around 8-9% annually when   entered during a recession. These numbers have been adjusted for   inflation. Questions or comments on this strategy? Educate yourself as index funds are merely a strategy that could be applied to various asset classes such as US Large-cap value stocks, Emerging Market stocks, Real Estate Investment Trusts, US Health Care stocks, Short-term bonds, and many other possibilities. Could you be more specific about which funds you meant as there is some great work by Fama and French on the returns of various asset classes over time. What about a Roth IRA? Mutual fund? Roth IRA is a type of account and not an investment in itself, so while I think it is a good idea to have Roth IRA, I would highly advise researching the ins and outs of this before assuming you can invest in one. You do realize that index funds are just a special type of mutual fund, right? It is also worth noting that there are a few kinds of mutual funds: Open-end, exchange-traded and closed-end. Which kind did you mean? What should I do with my money until the market hits another   recession? Economies have recessions, markets have ups and downs. I'd highly consider forming a real strategy rather than think, ""Oh let's toss it into an index fund until I need the money,"" as that seems like a recipe for disaster. Figure out what long-term financial goals do you have in mind, how OK are you with risk as if the market goes down for more than a few years straight, are you OK with seeing those savings be cut in half or worse?" "The emphasis of ""stop loss"" is ""stop"", not ""loss"". Stop and long term are contradictory. After you stop, what are you going to do with your cash? Since it's long term, you still have 5+ years to before you use the money, do you simply park everything in 0.5% savings account? On the other hand, if your investment holds N stocks and one has dropped a lot, you are free to switch to another one. This is just an investment strategy and you are still in the market."