I live in Cyprus, and I have been considering ways to get started with some basic investments in the US. After a little, and I mean little, research it seems that Index Funds, Bond Index Funds and Gold are a good fit.

I am not particularly money oriented, so I am looking for something that will give me something better than what I have with money sitting in the bank, but I also don't have the inclination to get into the daily or regular management of this type of thing, which is what lead me to the above.

So the questions

  1. Is this a good set of areas to look at investing in?
  2. Should I be targetting all three or should I just focus on one or two of the above.
  3. What percentage of my investment should I have across each of the above, equal spit across all three? Or is there a better spread?
  • 2
    The answer to this question depends a lot on your personal circumstances: your age, when you want to retire, what your goals are in investing (saving for something vs. saving for retirement), how much risk you can take, what percentage of your wealth you plan to invest, and more. The answer for a 63 year old investing all their money for retirement is completely different than the answer for a 22 year old with an extra $2000 they are looking to fool around with. Commented Nov 21, 2010 at 3:13

3 Answers 3


Index funds can be a very good way to get into the stock market. It's a lot easier, and cheaper, to buy a few shares of an index fund than it is to buy a few shares in hundreds of different companies. An index fund will also generally charge lower fees than an "actively managed" mutual fund, where the manager tries to pick which stocks to invest for you. While the actively managed fund might give you better returns (by investing in good companies instead of every company in the index) that doesn't always work out, and the fees can eat away at that advantage. (Stocks, on average, are expected to yield an annual return of 4%, after inflation. Consider that when you see an expense ratio of 1%. Index funds should charge you more like 0.1%-0.3% or so, possibly more if it's an exotic index.)

The question is what sort of index you're going to invest in. The Standard and Poor's 500 (S&P 500) is a major index, and if you see someone talking about the performance of a mutual fund or investment strategy, there's a good chance they'll compare it to the return of the S&P 500. Moreover, there are a variety of index funds and exchange-traded funds that offer very good expense ratios (e.g. Vanguard's ETF charges ~0.06%, very cheap!). You can also find some funds which try to get you exposure to the entire world stock market, e.g. Vanguard Total World Stock ETF, NYSE:VT).

An index fund is probably the ideal way to start a portfolio - easy, and you get a lot of diversification. Later, when you have more money available, you can consider adding individual stocks or investing in specific sectors or regions. (Someone else suggested Brazil/Russia/Indo-China, or BRICs - having some money invested in that region isn't necessarily a bad idea, but putting all or most of your money in that region would be. If BRICs are more of your portfolio then they are of the world economy, your portfolio isn't balanced. Also, while these countries are experiencing a lot of economic growth, that doesn't always mean that the companies that you own stock in are the ones which will benefit; small businesses and new ventures may make up a significant part of that growth.)

Bond funds are useful when you want to diversify your portfolio so that it's not all stocks. There's a bunch of portfolio theory built around asset allocation strategies. The idea is that you should try to maintain a target mix of assets, whatever the market's doing. The basic simplified guideline about investing for retirement says that your portfolio should have (your age)% in bonds (e.g. a 30-year-old should have 30% in bonds, a 50-year-old 50%.)

This helps maintain a balance between the volatility of your portfolio (the stock market's ups and downs) and the rate of return: you want to earn money when you can, but when it's almost time to spend it, you don't want a sudden stock market crash to wipe it all out. Bonds help preserve that value (but don't have as nice of a return).

The other idea behind asset allocation is that if the market changes - e.g. your stocks go up a lot while your bonds stagnate - you rebalance and buy more bonds. If the stock market subsequently crashes, you move some of your bond money back into stocks. This basically means that you buy low and sell high, just by maintaining your asset allocation. This is generally more reliable than trying to "time the market" and move into an asset class before it goes up (and move out before it goes down). Market-timing is just speculation. You get better returns if you guess right, but you get worse returns if you guess wrong.

Commodity funds are useful as another way to diversify your portfolio, and can serve as a little bit of protection in case of crisis or inflation. You can buy gold, silver, platinum and palladium ETFs on the stock exchanges. Having a small amount of money in these funds isn't a bad idea, but commodities can be subject to violent price swings! Moreover, a bar of gold doesn't really earn any money (and owning a share of a precious-metals ETF will incur administrative, storage, and insurance costs to boot). A well-run business does earn money.

Assuming you're saving for the long haul (retirement or something several decades off) my suggestion for you would be to start by investing most of your money* in index funds to match the total world stock market (with something like the aforementioned NYSE:VT, for instance), a small portion in bonds, and a smaller portion in commodity funds. (For all the negative stuff I've said about market-timing, it's pretty clear that the bond market is very expensive right now, and so are the commodities!) Then, as you do additional research and determine what sort investments are right for you, add new investment money in the places that you think are appropriate - stock funds, bond funds, commodity funds, individual stocks, sector-specific funds, actively managed mutual funds, et cetera - and try to maintain a reasonable asset allocation.

Have fun.

*(Most of your investment money. You should have a separate fund for emergencies, and don't invest money in stocks if you know you're going need it within the next few years).

  • 1
    Marvelous, I think these should be added to the tag wiki.
    – MrChrister
    Commented Nov 21, 2010 at 2:27
  • 3
    It's a lot easier, and cheaper, to buy a few shares of an index fund than it is to buy a few shares in hundreds of different companies. Understatement of the year. :-)
    – poolie
    Commented Dec 20, 2010 at 3:11
  • Stocks, on average, are expected to yield an annual return of 4%, after inflation. Isn't that too conservative?
    – D1X
    Commented Jun 16, 2020 at 15:37

I'd say neither. Index Funds mimic whatever index. Some stocks that are in the index are good investment opportunities, others not so much. I'm guessing the Bond Index Funds do the same. As for Gold... did you notice how much gold has risen lately? Do you think it will keep on rising like that? For which period? (Hint: if your timespan is less than 10 years, you really shouldn't invest). Investing is about buying low, and selling high. Gold is high, don't touch it.

If you want to invest in funds, look at 4 or 5 star Morningstar rated funds. My advisors suggest Threadneedle (Lux) US Equities DU - LU0096364046 with a 4 star rating as the best American fund at this time. However, they are not favoring American stocks at this moment... so maybe you should stay away from the US for now.

Have you looked at the BRIC (Brazil, Russia, India, China) countries?

  • thank you for the info. I will look at the BRIC countries. To be honest, I will need to post some more questions here just to get some direction on how to get started with investing, how to actually go about buying into a market etc. Commented Nov 20, 2010 at 20:39
  • 3
    Actively-managed mutual funds = fees though. And remember that not every 4-star fund is there because they're good; some just get lucky. BRICs are okay, but I wouldn't bet the whole farm on them; China is gearing up for a big battle with inflation and their monetary policy is already pretty stretched and makes Bernanke's "QE2" business look trivial by comparison). When push comes to shove, the Chinese government is going to do what it can to keep the social order intact, whether or not that's good for investors like you and me. (Hey, it'll prevent starvation and bloody riots, at least.)
    – user296
    Commented Nov 21, 2010 at 1:56
  • 1
    Don't look at Morningstar ratings to choose funds. Research indicates that funds that have done well in the last several years (which gives a high star rating) are likely to do poorly in future. There seems to be little if any persistent effect from skilled management. Rather, the high returns mostly come from particular sectors growing in popularity, after which they are likely to decline. Few are good: most are just lucky.
    – poolie
    Commented Dec 20, 2010 at 3:22
  • From your research: "there is hardly any evidence that picking only the best-performing fund of the selection period would result in superior performance in the subsequent holding period. At best, the odds to achieve better-than-average performance during the holding period can be somewhat increased by selecting a portfolio of funds on the basis of past performance." That's better than nothing, and nobody can predict the future.
    – GUI Junkie
    Commented Dec 20, 2010 at 20:42

Taking into account that you are in Cyprus, a Euro country, you should not invest in USD as the USA and China are starting a currency war that will benefit the Euro. Meaning, if you buy USD today, they will be worth less in a couple of months.

As for the way of investing your money. Look at it like a boat race, starting on the 1st of January and ending on the 31st of December each year. There are a lot of boats in the water. Some are small, some are big, some are whole fleets. Your objective is to choose the fastest boat at any time.

If you invest all of your money in one small boat, that might sink before the end of the year, you are putting yourself at risk. Say: Startup Capital.

If you invest all of your money in a medium sized boat, you still run the risk of it sinking. Say: Stock market stock.

If you invest all of your money in a supertanker, the risk of it sinking is smaller, and the probability of it ending first in the race is also smaller. Say: a stock of a multinational.

A fleet is limited by it's slowest boat, but it will surely reach the shore. Say: a fund.

Now investing money is time consuming, and you may not have the money to create your own portfolio (your own fleet). So a fund should be your choice. However, there are a lot of funds out there, and not all funds perform the same.

Most funds are compared with their index. A 3 star Morningstar rated fund is performing on par with it's index for a time period. A 4 or 5 star rated fund is doing better than it's index. Most funds fluctuate between ratings. A 4 star rated fund can be mismanaged and in a number of months become a 2 star rated fund. Or the other way around. But it's not just luck.

Depending on the money you have available, your best bet is to buy a number of star rated, managed funds. There are a lot of factors to keep into account. Currency is one. Geography, Sector... Don't buy for less than 1.000€ in one fund, and don't buy more than 10 funds.

Stay away from Gold, unless you want to speculate (short term). Stay away from the USD (for now). And if you can prevent it, don't put all your eggs in one basket.

  • As for fees, you should be looking at the bottom line. If you invest 1.000€ and an index fund wins 5%, but a managed fund wins 10%... Whose fleet wins the race at the end of the year?
    – GUI Junkie
    Commented Nov 22, 2010 at 14:43
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    Much research indicates that the majority of managed funds to not outperform their index over the long term. Furthermore, since managed fund fees are generally higher than index fund fees, it's unlikely to find a managed fund that can consistently outperform the index. Fees and the bottom line are highly correlated. Commented Nov 22, 2010 at 17:04

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