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How to choose mutual funds to invest in (lemm.ee)

submitted 1 month ago by [email protected] to c/[email protected]

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I've been on an HSA+HDHP for a couple of years now and only realized recently the interest earned from investing HSA money is also tax free, so I want to start investing a part of my savings and see how it goes. I have 2 options, Betterment or Mutual Funds. I figured I'd try the latter to avoid fees, but I'm not sure which funds to choose. My HSA currently provides 30 fund options.

I see people mentioning Vanguard a lot so I spread out my initial investment into 25% chunks across 4 different Vanguard funds. How did I choose them? Well I literally just looked at the performance graphs and selected the ones that historically went up steadily without major dips. As a total noob, how can I improve my choices? Is there a simple way to decide without having to dive deep into the stock market?

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[–] [email protected] 13 points 1 month ago (7 children)

A total market fund, or S&p 500 fund would be a good start. Pick something with a low percentage fee

[–] [email protected] 2 points 1 month ago (3 children)

Thanks! Noob question - what is a "low percentage fee" in this context?

[–] [email protected] 5 points 1 month ago (1 children)

It's the fee the fund manager charges. Looking at mine, they call them expense ratios. Big broad stuff like S&p and total market is typically low fee <1%. But something that tracks a specific market sector, or a really active fund could charge >5%

[–] [email protected] 1 points 1 month ago (1 children)

Gotcha. Thank you for the explanation!

[–] [email protected] 1 points 1 month ago

Just to emphasize the importance of low expense ratios: you don't just lose the money you pay to the fund manager. Over time you also lose what that money could have made if it had stayed invested. Even a modest retirement fund can have an opportunity cost of $50k by the time you retire. As another commenter said, Vanguard tends to have the lowest fees.

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