Which Is The Best Index Fund For You?

 

“Andrew, which is the BEST index fund for me?”

This is one of the most common questions I get asked.

And as I mention in my books, there’s no secret answer.

Just make sure you have global diversification, that your management fees are low, that you rebalance once a year and that you save like hell.

Unfortunately, as I explain in this story, too many choices make us bad investors.

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Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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16 Responses

  1. alex says:

    Andrew,

    Thanks for this article. This is very timely. As you say, it is having the right habits that is most important. If you are trying to lose weight, rather than spending hours researching which trainers are best, you are better off just buying pair as soon as possible and getting running. It isn’t the trainers that are going to burn the fat, it is you. Getting one pair over another is going to make next to no difference.

  2. BW says:

    I’d be interested to hear your thoughts on the following: I know you need to have a combination of stocks/bonds in your portfolio according to your age but I’ve read a few things this week saying the “bond bubble will burst soon/this year” and that bonds are a bad place to invest.

    Can you comment please as it has me a bit worried. It doesn’t help that the stock market is really high as well!

    • Hi BW,

      A short term bond market index cannot crash.

      First of all, when bonds “crash” people are looking at very insignificant price drops. If there were a bond price crash of 8%, that would be catastrophic, compared to bond price drops in the past. But that kind of drop simply won’t happen. Stocks, on the other hand, are the far more volatile of the two. Stocks could drop 20%, 30% or even 40% and that would fall into the normal range for a stock market crash.

      But back to bonds: In my books, I recommend short term or broad bond market indexes. These aren’t the same as individual bonds. If bond prices fall, new bonds get picked up and added into a bond market index, once the previous bonds expire. Such new bonds would have lower prices and higher interest yields (as a result of their lower prices). With a bond market index, when a one year bond expires, another one year bond gets purchased. When a 2 year bond expires, another 2 year bond gets purchased. As such, no matter what happens to bond prices, a short-term bond market index will never have issues. As for stock markets, at all-time highs, I hope this story helps: https://assetbuilder.com/knowledge-center/articles/stocks-might-crash-should-you-sell-or-stop-buying

      Cheers,
      Andrew

  3. Josh says:

    HI Andrew – I follow your global nomad suggested portfolio (VWRD & IAAA), however recently come across AGGG (iShares Global Aggregate Bond UCITS ETF | AGGG). Any thoughts on this?

    • Hi Josh,

      As you probably know, there are a multitude of ETFs you could choose. Many of them are far too similar to sweat the differences. You already have a good portfolio. Now save like crazy and when the markets crash, keep a cool head.

      Cheers,
      Andrew

  4. Miwo says:

    Hello Andrew,

    I have a son who wants to enter teaching in BC. He also has started index investing. But we see that you have retired from Canadian teaching already!

    I know you recommend index investing but would you not recommend teaching now? I was already thinking that if the job market was tight for teachers, he could go overseas or train as a financial planner. He already sees the benefits of index investing at 19 years old!!!

    • Hi Miwo,

      I think teaching is the best profession in the world. And I think financial advisory jobs are among the worst in the world….considering that most of the firms have massive conflicts of interest, especially Canadian firms, with their sky high mutual fund MERs.

      If he can get a teaching job in B.C. he’ll be able to get a pension. If he can’t find a job, he could try his luck overseas.

      Cheers,
      Andrew

  5. Adeel says:

    Hi Andrew,

    Can you please advise which are the best available Sharia Compliant ETFs to invest in?

    Thanks,
    Adeel

  6. Jean says:

    Hi Andrew, I hope this is the right place to comment…

    I just finished your book(Millionaire Teacher) and I asked my wife to read it as well because I was telling her that I wanted to put all my money in index funds through my brokerage account with my bank instead of paying higher fees through active management. I am trying to convince her to do the same because last year we paid close to 30 000$ in fees and like you said they are not beating the index(not even close). My wife is reluctant because she is worried Vanguard could go bankrupt. My question might sound stupid but can it go bankrupt? I though we owned a part of the companies if we bought an index no ? If Vanguard could go bankrupt, should we buy Ishares as well to diversify? I was leaning towards Vanguard because I read the book The Bogleheads and I kind of liked the guy behind the company.

    thanks a lot

    • Hi Jean,

      Vanguard is a co-op, run much like a non-profit. Its expenses are low. They don’t borrow money (unlike banks) so its likely the safest financial institution that you could ever invest in. It’s also the biggest mutual fund company in the United States.

      Cheers,
      Andrew

      • Jean says:

        Ok thanks Andrew. You just gave me the go ahead with my wife. I can’t thank you enough. I can’t wait to teach all of this to the kids at school. Like you said, these are rules we should have learned back then.

        Cheers,
        Jean

  7. Divesh Gupta says:

    Am reading your book – Millionaire Expat and am curious to know if the index funds approach applies to Hong Kong stock market as well. I see most of your examples come from the US/Canada markets. Do you see the HK stock and bond index to be a safe bet for investing in the medium to long term.

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