Money Mondays: Index Fund Investing
Finance is a world build and sustained by making things more complicated then it needs to be. That was until John Boyle had an idea.
His idea was why don't they create a fund that would auto track the industry benchmarks, like the S&P 500 or NASDAQ. His goal wasy to raise $50 - $150 million to start a fund that would do just this. He raised $11 million and said it was an abject failure. Probably like how Van Gogh felt during his whole life. Or how any of us have ever felt when a dream or goal has fallen short.
Lucky for John in his lifetime his 'failure' changed the entire nature of investing, for the entire world. NDB.
Dude was a modern day Robinhood. Imagine it. Before this approach you would have to watch the market daily, keep up with which companies are included in the S&P 500 and at what rank they hold. You'd then take this information and all the other information that you personally understand about the market and use it to calculate how much % wise of your portfolio should be allocated to that fund.
And if a company was dropped and a new one added? Then you'd have to sell out of the old stock, pay capital gains on tax on it, and then buy the new company.
Instead, now all you have to do as an investor is choose 1 fund, like VOO, and it gets auto-rebalanced on the backend. The fund does the heavy lifting and acts as a cusion so you never have to take a hit on your taxes until you sell. They do the management, so then you pay them a small fee. Wayyyy smaller than you'd pay an advisor.
An index fund, like what we learned in the newsletter last week, is a crucial part in any persons portfolio. Even if you work with a financial advisor, most likely they ahve you invested in multiple index funds. Side note - if you're paying an advisor, you shouldn't JUST be in index funds. If so.. red flag.
There are 2 types of index funds. Mutual Funds and ETFs or Exchange Traded Funds.
Mutual Funds: Typically actively managed so you pay more for this.
ETFs: Typically passively managed so you have lower fees. And honestly, higher returns.
Most of the risk in investing is placing all of your money in 1 company. It can pay off, like Tesla did. Or it can flop and you lose a lot or everything..
Once you know what your risk tolerance is, the types of sectors you want to be in, and a few other factors like your age, you can choose index funds that align.
Some people make this their entire investment approach. I don't agree with this, I think you miss out on major opportunity if you just invest in funds.. more on that later.
The index fund millionaire exists for a lefit reason. This type of investing opened the door to the average investor. Meaning you can easily be in the game too. You just have to start.
This is exactly the work that the women in the Invested Program are doing right now.
If you're sick of feeling behind, feeling like you're making more than you ever have, stop being left behind and get in the game.
Your Financial Life Coach,
Nicole Ingham
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