Today I bought 28.043 shares of the Vanguard 500 Index Fund (VFINX) at a price of $106.98 a share. Fidelity charged me a fee of $75 for the trade, because the fund is not part of their fund network, for a total cost of $3075.00.
Why this fund? Well the fund definition is as follows:
The investment seeks to track the performance of a benchmark index that measures the investment return of large-capitalization stocks. The fund employs a passive management investment approach designed to track the performance of the Standard & Poor’s 500 index, a widely recognized benchmark of U.S. stock market performance that is dominated by the stocks of large U.S. companies. It invests all, or substantially all, of assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
My thought process on buying this fund is that I wanted a broad diversified fund as the cornerstone of my portfolio. I think that over the last three years that this fund has managed to beat 95% of all equity funds. So by buying it I am virtually guaranteed to be in the top 10% or so of all equity funds.
Why $3,000. As mentioned in an early post, I have about $13,000 to invest, so the Vanguard purchase accounts for almost 25% of my portfolio. What I did not want to do was invest all my money at once and then have the stock market fall sharply. Plus I have other stocks that I am interested in buying. So the $3,000 was an amount that was large enough that if the fund does well I will be able to see a significant increase in my portfolio, and not too large that I have no money to money to invest if the market drops lower.
This kind of investing strategy is similar to dollar-cost averaging and is simply a strategy that makes sure that you do not invest all your money at the market top.
My next step is to research some stocks and add them to my portfolio over the next couple of months.
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