I recently received this question from a client who is early in her investing journey:
“I don't have enough investable assets to diversify my portfolio widely, which makes it challenging to mitigate the impact of bad investments. Additionally, I lack the expertise and time to consistently choose top-notch investments. How do I even start building up my nest egg?”
This is where Index Funds excel—they allow for small investments without the need to worry about losing everything to one or two shady companies or deals. Index funds combine the benefits of diversification, low fees, tax efficiency, and low effort.
I created an Index Funds Quick Guide below – similar funds, but at different brokers. I’m partial to the ETFs over the mutual funds because they are easier to trade, but all of the funds tracking the same index should have similar results.
Index funds are also good tools for tax-loss harvesting, because as long as the fund is tracking a different index, the wash-sale rules don’t apply. For instance, you can sell VOO and buy VTI, retaining very similar exposure to the market but harvesting losses or gains for tax purposes without triggering a wash-sale.
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