#Millionaire #Index #Fund #Investing #Beginners
What’s up you guys it’s Graham here so let’s cover one of my favorite ways to invest ever besides real estate and I would even go so far as to say that this is the best safest and easiest long-term investment strategy out there for most people and also this is the investment
Strategy that requires very little work no skill needed and still has some of the best returns out there and even more surprising what if I told you that this investment outperform 99% of individual investors and almost 95% of hedge funds and this is something you can do with
About 20 minutes of your time and yes I know that you know what I’m already talking about here based on the title of the video but let’s drum up a little bit of suspense because talking about Vanguard index funds so let’s go over exactly what an index fund is how it
Works and how you can set this up yourself in a matter of minutes to profit long term and maybe one day get like lambo rich or like yacht rich or buy private islands or whatever you want anyway index funds but really quick I do just want to mention that this video is
Not sponsored by Vanguard I had no financial incentive if you use them or not I don’t have any affiliate links to Vanguard if you buy their funds or if you don’t decide to buy their funds I have no financial affiliation with Vanguard whatsoever I just happen to think this is a great
Topic to talk about I truly believe in this strategy long term I do it myself and also I have a lot of data and research the backs of everything that I talk about so all I ask in return is if you guys enjoy videos and topics like
This to go ahead and gently tap that like button it helps up the channel tremendously if you do that so it just takes one fraction of a second to go ahead and do that that’s it and enjoy the video so first of all let’s start here what exactly is an index fund an
Index fund is really just a group of investments that you could put your money into and then you own a percentage of the entire thing here’s an example imagine if I owned a thousand apartment buildings in there each worth one thousand dollars I go to you and I say I
Will sell you one of my buildings for $1000 that would almost be like the equivalent of you going and buying one stock of one individual company but the problem here is that now you only have one apartment building or one investment and what happens if that investment doesn’t do very well
Or maybe that one company you invested in has a CEO who loves to talk on Twitter and he ends up saying some stupid stuff that gets him in trouble with the SEC and that company doesn’t do very well in the short term how do you prevent something like this well here’s
The solution to this imagine in my previous example where I gave you a scenario where instead of investing a thousand dollars and you buy one of my thousand apartment buildings imagine if you could invest $1,000 and then you get 0.1% of everything that I own so you’re
A small percentage owner in all of my apartment buildings this way you get an averaged return based off everything that I own this is basically an index fund for example you can own all of the top 500 publicly traded companies here in the United States for the low price
Of just about 260 dollars this way you’re not just buying one stock in one company but instead you’re buying literally all of them and also with index funds you can do this with pretty much any market out there if you want to own a small portion of pretty much every
Single international stock out there well you can do that from the low price of just twenty eight dollars where you can own a small portion of the entire US stock market for the low price of just seventy dollars and it doesn’t stop there because there are index funds for
Pretty much any single market out there like you want to invest in bonds well here you go or if you want to buy a whole bunch of real estate but you don’t want to get just one REIT well vnq offers all of this with a whole bunch of
Office buildings and hotels your money ends up going a very long way when you start doing this but that thin lens the question why exactly does this make such a good investment and also why haven’t you already smashed that like button if you didn’t do that earlier all right so
Let’s start here the biggest advantage with index funds is that they have very low fees that’s because these indexes are very simple to put together they’re very simple to manage there isn’t much overhead and all of those savings get passed on to you as the investor and
This is what’s known as a passively managed fund you’re buying into an entire portfolio of stocks that automatically gets balanced and adjusted over time without doing any work and paying as low as 0.03 to 0.04 percent annually to do so is the total opposite of what’s called a
Mutual fund and this is a fund that employs professional stock pickers who buy and sell stocks over time to try to beat the market average however all of the additional overhead expenses associated with doing this as well as all the fees associated with buying and selling ultimately get passed on to you
As the investor in the form of much higher fees and all of that is without the guarantee of actually beating the market in the first place and speaking of that when you compare the performance between the two both index funds and mutual funds it’s found that only 22% of
Actively traded funds have actually beat the market over a ten-year period that was it only 22% actually achieved that result so that means that in 78% of situations you’re better off and would have made more money just investing in an index fund over ten years the second advantage with doing this is
That for most investors out there they will make more money investing in an index fund than they would investing in individual stocks on their own several studies have shown that over 92 to 95 percent of portfolio managers could not outperform the market index over a 15
Year period and keep in mind that these are people who are the brightest in their field who have gone to Ivy League schools with a really deep understanding of economics and finance who do this full-time daily and not even they can outperform just the market index and
Those figures are so so so much worse for the average individual investor a big reason for that is that many investors tend to trade emotionally and panic when the market drops then they try to time the market or they jump in a stock as it’s going up for fear of
Missing out and it’s because of that that usually correlates to much lower than average returns and also in an interview in 2017 Warren Buffett went so far as to say that attempting to pick times to buy and sell stocks is a mistake for 99% of the population Warren
Buffett even went so far as to bet a collection of hedge fund managers $1,000,000 that they couldn’t beat the market over a ten-year period and outperform an index fund literally a standard Vanguard index fund outperform the best hedge fund managers in the entire world for a million-dollar bet
And if the wealthiest living person right now is telling all of us to go and buy index funds then I have a feeling that is something we should probably listen to the third advantage of going and buying index funds is to have a huge amount of diversification like even if
You have 20 individual stocks in your stock portfolio if one of those goes down and fails you can end up losing a lot of money on the other hand if you go and buy the entire S&P 500 index funds you have 500 different stocks and different companies that weight your
Overall return and even if one of those fails it doesn’t really matter because you have 499 others to boost you up this means that having a few individual companies go up or down in the markets in the short term won’t really affect your overall return because you’re
Betting long term that the market will rise overall as a whole and also doing this as an investor will give you a lot more market stability because let’s be real most people can’t handle the market volatility and as soon as they see it go down they panic and they freak out and
They sell it and then they see it going back up and they buy back in because it’s going back up now and they don’t want to miss at all the money they can’t handle any sort of market volatility so just by virtue of that and recognizing
The human tendency that we tend to freak out over the smallest things and panic and get emotional an index fund would solve most of those issues and forth the reason I invest in index funds is my only other investment besides real estate is because it takes no time to do
And it’s easy I just love the simplicity of it I also fully acknowledge that I am NOT a stock market expert I cannot buy and sell stocks that will consistently beat the market long term nor do I want to spend all of that time reading stock charts reading news and reading earnings
Reports that would allow me to make those types of decisions and even if I took all the time to do that and I really dedicated myself to trading stocks and trying to beat the market if 95% of hedge fund managers the most skilled people in the world cannot consistently beat the market long-term
What makes me think that I can I know my limitations and I will just work around that so instead I will just invest in the entire get sit back relax and focus my time on other areas that will make me even more money than I can reinvest back into the
Markets and I would even go so far as to say that for most people watching they would be best off just investing in an index fund to get the highest overall return long time and I got to say that by doing this it is so much less
Stressful it’s literally just a buy it and forget about it mentality there is no panicking in the middle of the night worried about like earnings reports tomorrow there is no worries about like SEC allegations or companies going down or profits falling this this no worries whatsoever for me I just know that index
Funds are my second largest investment besides real estate and I have no concern that long-term overall the market will be trending up alright so with that out of the way what’s the best way to go about doing this and also which are the best investments for you
To buy now my favorite index fund investing method is what’s called the three fund portfolio this is also one of the most popular index fund investing strategies that like I said earlier beats 99% of individual investors long-term over a 10-year period and as the name suggests it obviously consists
Of three funds obviously funds number one is a US stock market index fund number two is an international stock market index and fun number three is a bond market index and that is it this gives you the broadest diversification at the absolute cheapest cost and is going to give you the highest returns
Overall from just about almost anything else that you can do in your own and not only that but because you’re investing in multiple asset classes you have three almost uncorrelated markets that you have your money into so that way if something happens to one you have two
Others that would balance that out so how easy is this then to do well here are three funds that Vanguard has that would basically be the entire portfolio first you have US stocks and that would be the Vanguard total stock market index fund vt sacks then you have international
Stocks with the Vanguard total international index fund VIX and then you also have bonds the Vanguard total bond market index fund V blue it’s a good vivix vivix Alexis it’s Vivat Alex that’s that’s what it is now with this in terms of how much and which to buy it really depends on how
Close you are to retirement the general rule of thumb when it comes to this is that the further you are from retirement the more aggressive you could be with your portfolio which means the more stocks that you should have likewise if you’re closer to retirement the less aggressive your portfolio should be the
Less risk you should take and therefore the more bonds you should have so this means if you’re anything like me and you’re in your 20s or 30s chances are you would be fine with seventy to ninety percent in stocks and then 10 to 30% in
Bonds and then just buy it and hold that for 30 to 40 years that also gives you the best chance to recover in any sort of market drop in the short term because you know that over the long term it’s going to be going up in value over time
And also if you’re a few years away from retirement it might be a good idea to go like 80 to 85 percent bonds and then maybe 20 to 15% in stocks so that way you have a much safer stable return in retirement when you need the money now
When it comes to me personally I am putting seventy percent in US stocks 20 percent in international stocks and then 10 percent in bonds and then I’m planning to hold all of this and contribute to it regularly over the next 30 years without changing it up without
Doing a single thing it just by hold reinvest hold buy more holds keep holding keep holding keep buying more and then holding that’s it and like I said for most people this would have the highest returns of just about anything you can do yourself in the stock market long
Term overall on average that means that I won’t get people in the comment section being like well this is bad advantage because I bought Amazon 15 years ago and now it’s worth 10 million dollars so that’s really bad advice Graham my stocks are up 50% this year I’m just saying long-term consistently
Long-term I’m not talking about the few people who got really lucky with stocks or the 1% that was able to do this successfully long term I’m talking overall to the 99% of people watching this right now and even though with me real estate has been my number one investment
Over the last ten years I still invest in index funds because they totally recognize the benefit the diversification and the stability of doing this long-term for a relatively low cost but then what about when it comes to market timing since we’re nearing all-time highs again does this
Mean it’s a bad time to invest or is this a good time to invest from what do I think when it comes to this and this is probably one of the most common comments that I get anytime I talk about the stock market and thankfully this is
A relatively easy one to answer the truth is that no one can accurately and consistently predict what the market is going to be doing in the short term it wasn’t even two months ago that the market was crashing the bull run was over everyone should sell everything and
Hold cash and then buy back in at the dip and then like two months later we’ve almost entirely recovered and everyone is taking back what they said and like oh well no the market isn’t really crashing it’s it’s it’s actually I never said that so with that said there have
Been dozens if not hundreds of studies that have been done on this that proved that time in the market beats timing the market in the majority of situations and a study done by Charles Schwab they found that in 74% of situations you’re better off investing immediately and
Holding for twenty years then you aren’t trying to time the lowest point of the market and then riding the wave no one could predict what the market is going to be in the short term so why even try instead I just invest whenever I have the money with the expectation of
Holding it one to two decades and I will come out ahead now in terms of actually doing this it is really just as simple as going to Vanguard calm opening an account typing in your checking accounts information and then you’re pretty much good to go within like 20 minutes and
All you need to do after that is just keep buying the same investments over and over and over again and expect to grow your wealth at the same rate as the entire stock market even though I made this video specifically about Vanguard index funds there are other brokerages
Out there that you can feel free to use as well fidelity happens to be a very good example of another company that I would love to use besides Vanguard so the answer is no you do not need to invest with Vanguard but if you decide to go elsewhere at least make sure that
Their fees are on par or lower than Vanguard so that way you’re not leaving extra money on the table and that’s pretty much it that’s all you have to do it’s really easy it’s really basic it’s really simple and that strategy will be 99% of individual investors out there
For a very low cost I mean it’s really just there’s nothing not to like about this so with that said you guys thank you so much for watching I really appreciate it if you guys made to the very end you haven’t already subscribed yet make sure to subscribe I post three
Videos a week so if you want to stay tuned with that make sure to hit that subscribe button also feel free to add me on Instagram I post it pretty much daily so if you want to be a part of it there feel free to add me there thank
You again for watching and until next time
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