Happy Sunday readers!
Finally after having no money following a big splurge on entertaining visiting friends, moving apartments, paying bond, buying flights back home for Christmas and general socialising, this month I’m being smarter with my money and getting more bang for buck.
My first $1000 was earned from putting aside a big chunk of my monthly salary into my new Commsec account following payday last Friday.
I’ve never known how to invest in shares (a Bachelor degree in Commerce taught me nothing) and given that there is so much good and bad information and advice on how to invest and numerous bait-like get-rich-quick schemes, I’ve turned to my trusted FI bloggers for advice.
With my little investing experience and a lot of reading into FI blogs, I’ve decided to invest in the Vanguard Australian Shares Index Exchange Traded Fund (EFT), or VAS for short, which is a low-cost managed fund, indexed on the ASX S&P 300. I heard about Vanguard initially through reading the classic FI blog ‘Mr Money Mustache’.
So how does the VAS index fund work?
Instead of investing in one specific company which is individually affected by internal risks and external risks (such as the economy, international and local politics, tax and law), you can invest in a slice of (almost) the entire market. VAS is indexed on the biggest 300 companies listed on the Australian Stock Exchange across numerous industries from finance, real estate, retail and technology. Investing in the ASX300 means that you instantly have a diversified share portfolio, buffered from the risks of investing in one industry or company. While you may not reap the benefits of picking the next Facebook or Google and making multiples from a skyrocketing share price, the benefits of individually picking stocks which increase in value is shortly outweighed by price fluctuations in that stock itself or losses from other individual stocks.
Statistically speaking, if seasoned Wall Street investors who spend 100+ hours a week trading rarely beat the market, why not invest in the market itself?
Another reason why I’m investing in VAS instead of other funds is due to the exorbitant fees financial advisors and managed funds charge. Instead of paying a financial advisor large fees to be sold sub-substandard investment products for which they receive a big commission, with Vanguard you pay a tiny management fee to invest in the market as a whole. Fees for VAS are 0.14%, so if you invest $1000, then the annual management fee is $1.40, much less than a coffee!
I would love to hear any ideas you have to build passive income in the comments below 🙂
xx Miss Piggy