Hey, my name is Chris with Money Burst, and I'm here to tell you that you do not need to be an expert to invest. You don't need to have a degree, or millions of dollars either. All you have to do is keep things simple. Because, look, I don't even consider myself an expert investor. Don't fool yourself into believing that you can predict the future. Just keep things as simple as possible and you are going to be great.
You can start off by using a simple retirement account. A 401k, or 457 plans, or a 403b, you could even choose to open up an IRA if your job doesn't offer a retirement plan. Choose to invest in a target date fund, and then just leave it alone. You don't have to do anything. But if you don't have a target date fund available to you, or maybe you like to be a little more hands-on, let me walk you through a simple DIY investing strategy.
A quick heads up: I want to break down some terminology because everything I'm going to be referencing going forward will be considered either a mutual fund or an ETF, and ETF just stands for Exchange Traded Fund. And both of these mutual funds and ETFs are a collection of hundreds, or sometimes thousands, of stocks or bonds and they're put together by an investment manager or a team at a funds company. And if you're thinking about a fund company, you can think of names like Vanguard or Fidelity. When you buy a piece of a mutual fund or an ETF, you own everything held within it and it just makes it really easy for you to purchase a big, broad group of investments without a lot of work or cost on your side.
Let's start with the biggest piece of your retirement nest egg; stocks. And if you're on the younger side, you know, in your 20s and 30s, this is going to make up the bulk of what your money is invested in. You know anywhere from 80 to 90 percent, and this is because this is where the growth comes from. Stocks really grow in value much quicker than any other item you're going to have in your retirement account. But with that greater return, is going to come with more risk. And so, I want to focus on a variation of a mutual fund or ETF called an index fund, and an index fund, basically, quickly mimics an existing index.
So, one of the more popular ones is the S&P 500. And this is an index that monitors 500 of some of the largest companies traded in the US. And so, this Index Fund just buys exactly what is tracked inside of that index. It allows you to have your money easily spread across these 500 companies and these funds are also very cheap for you to own because it doesn't really take a lot of work. I mean obviously they're doing things behind the scenes, but they're really just copying what's inside of the S&P 500 so, it just makes it really simple. You can identify these funds by their name, they'll typically have S&P 500 listed somewhere in the fund name when you look inside of your retirement plan.
The next item is the bond fund, and this is an index fund that contains bonds, as you may have guessed. Bonds are really just loans that you make to companies or governments. It's a nice easy way for them to work on a project, or do some more R&D, or build a library, or a park. Essentially what they're doing is they're taking the money from you, and they're going to pay you interest for the right to borrow this money. And when the term is up, they give you your money back. A smaller portion of your retirement nest egg is going to be placed into bonds, especially when you're younger. That remaining 10 to 20% you have left over is going to go into bonds, but as you age, it's going to take up a bigger and bigger portion of your portfolio.
And the reason why bonds are typically, a smaller portion when you're younger, is that you aren't going to earn as much money as you would with stocks, but they also aren't as risky so you're not as likely to lose money as you are with stocks. They provide a nice stability to your retirement account, which you want as you age, and just like with the stock index funds, you can also identify bond index funds by their name. Just look for something that says Total Bond Market Index or Aggregate Bond Index.
And the last piece of this DIY investment strategy that I want to talk to you about is the international stock fund. And this would actually take up a portion of that first group of stocks that we talked about. A lot of experts out there, a lot of advisors, say that around 20% of that money you would have invested in stocks should go towards international stocks, and as you probably guessed, this fund just copies an international stock index. International stock index follows stocks for companies that exist outside of the US. These companies typically perform a little bit differently than companies in the US. It's not a hard and fast rule but oftentimes, you know, these companies exist in different countries with different economies and political situations, and that can affect what's going on with those individual companies. So, by investing in international companies, it provides a little more diversification, a little more variety to what you're invested in. You can identify these international index funds by the fact that it probably will say International Index Fund in the name.
So that was a run-through of a quick DIY investment strategy that really anyone can implement, just using their simple work retirement plan or an IRA.