How to Pick Winning Investments

Just recently, I was helping my cousin, Hirsche start an investment account for the first time. He had a few questions on what to look for in stocks and how he should invest his money. In all honesty, I am not an expert about how to pick winning investments. I am relatively new to investing (3 years), but I do know a few basic principles that have helped me decided what to buy and when to buy them. This is what has worked for me:

Index Funds

My #1 choice for investment strategy relies on index fund and more specifically, total stock market index funds. I buy 2 different index funds called VTI and FZROX. Both are basically the same; they cover the entire stock market in the USA. There are a few reason I choose these funds over everything else.

1. Low Fees
2. They don’t charge commissions to buy
3. I understand them
4. I can manage them myself, without having to pay someone

Low Fees

VTI currently has an expense ratio of .03% and no commissions to trade. The .03% ER makes it so you only pay 30 cents per $1,000. FZROX has zero fees. That’s right, ZERO. Because of that, I’ve started putting most of my money into FZROX.

I have always believed that I am the sole person who will take care of my money the best. I don’t want to trust anyone else with my money because they won’t treat it as carefully as I will. Paying someone else to take care of MY money makes no sense, especially if I can do it for free. Vanguard and Fidelity make that very easy.

Understanding Index Funds

One of the biggest deterrents for people not managing their own investment accounts is their lack knowledge. You could spend loads of time trying to understand yield curves and R squared. I try to stick to some basic truths. JL Collins has the best series on stock market advice. I highly recommend reading his series. I follow the same beliefs and would recommend them to anyone.

There are a couple of things to look for when in index funds. 1. The price.

There are a couple of ways to find the price. You can simply google the ticker name (FZROX) and it should pull up with the current price. Or you can go on the site where you will purchase it and search for it there.

2. Risk Potential.

Stocks are “risky”. When you buy index funds, there is always the chance that you could lose money. My advice would be to go into buying index funds with the idea that you are in for the long-haul. “The market always goes back up” -JL Collins.

3. Portfolio Composition.

It’s always a good thing to know what you are buying before you buy it. The portfolio composition has a list of companies in the fund and a list of categories those companies belong to.

4. Rate of Return.

This may be the most important thing to know! How much money can you make on the index funds that you buy?

If you already own VTI or FZROX, you can look in your portfolio for balances and rate of return:

Active v. Passive Investing

There is much debate over which approach is better. Because I don’t have vast amounts of knowledge on investing strategies, I try to keep it simple. I also don’t plan to use my money anytime soon so I can leave my money invested, without having to worry about it.

These are some of the basics to picking winning investments. This approach has allowed me to grow my net worth in the past 3 years from -$10k to $35k. Not only has it grown $45k, I also get to keep most of it since I am not paying commissions or hefty fees.

I would love to help you start investing! Feel free to email me at thefundfamily@gmail.com or comment on this post. Let me know what you do to invest as well!