One or all 3 index funds
Would it be wise to invest in a total stock market index fund, S&P 500 Index Fund, and a NASDAQ index fund, or is there too much overlap, and therefore it would be wiser to invest in just one of them, and if so, which one?
Terry Says
Investing in three different index funds is "some" diversification. But to be truly diversified, you'd have to invest in perhaps an equity-income fund, maybe a short-term bond fund, and perhaps into an international index. So yes, your current idea does have overlap, and you should consider it all as exposure to the U.S. stock market. And when the market falls -- as it will eventually -- all of your finds will decline, and likely about the same amount. If you're using mutual funds at a place like Fidelity or Vanguard they can help you achieve broader diversification. And, by keeping some money outside the stock market -- in a money market fund, for example -- you can ride out most market moves until you are closer to needing the money at retirement.
