How To Become A Millionaire: Investing With Index Funds
We’ve been lied to. We’ve been sold the dream that if you go to college, work hard, get a good job, you will retire and live a good life. States show that people die after 7 years after retirement. I might as well keep working.
Choosing this track, you can become a millionaire in a shorter period of time, or you can go the long term route. I prefer that you do both and as you continue to get more information from me, you will easily see what I’m talking about.
If you’re here to become a millionaire, you’re in the right place because I’m going to give you the exact formula in order to do so. In this article, I’m going to teach you the following:
-Why Choosing Index Funds Is The Sure Path To Becoming A Millionaire
-What is An Index fund
-How Much To Invest To Become A Millionaire (Exact Formula)
-What Index Funds To Purchase
-Pros and Cons of Purchasing Index Funds
-How To Buy Index Funds
Why Choose Index Funds As The Path To Become a Millionaire?
Time is going to pass anyway and this method is considered to be a passively managed account. Your money is not growing inside of a savings account and if its just sitting there, you’re losing money due to inflation.
Over the previous 100 years, there has been ups and downs but generally the stock market has only gone in an upward projection. The index funds mirror the direction of the stock market so if your money is invested in an index fund, it will only go up as time passes by.
Adding in the fact of compounding interest along with your monthly contributions, your investments will exponentially multiply and you will gladly thank yourself for beginning this beautiful endeavor of investing in index funds. Investing is almost a sure path to becoming a millionaire, or perhaps even a multi-millionaire.
Of course, there is no guarantee as anything can happen in the stock market, but your risk is very low when dealing with this type of investment. Your future self will thank your present self for your consistent contributions. Do what no one is doing so that you can live how no one else is living.
Graph that shows index funding compounding with 10% or more
$250/Month math
Calculator on SmartAsset.com
What Is An Index Fund?
According to Investopedia.com, an index fund is a type of mutual fund or exchange-traded fund (ETF) with a portfolio constructed to match or track the components of a financial market index, such as the S&P 500. You may be asking yourself…
What the fudge (or some type of weird expletive) does that mean?
So let’s make this nice and simple. An index fund is a type of mutual fund inside of something called an index, and it mirrors the general performance of the stock market. The index fund can either be in the similar form of a mutual fund or it can be considered to be an ETF. Before I go any further, let me explain what an Index is and an ETF.
What is a Index?
In general, an index is a measure of something, and then a name or label for recognition. I can many hobbies, and nice cars can be one of those hobbies. I love to play sports, so basketball could be that hobby. I have now created 2 indexes…nice cars, and basketball. I can then group a number of people who love cars and basketball and tally them in those indexes. I now have 2 indexes with data of many different type of people who love those hobbies.
In this case, the index would be the S&P 500 which is a measure of the top 500 companies in the US along with their stock value, all grouped in one place. There are other indexes such as the Dow Jones Inudustrial, Nasdaq, and many others.
An Index Fund is a type of mutual fund that is based off of a certain index. The Vanguard index fund VTSAX is an index fund that has stocks from all of the top performing US based companies in the S&P 500. If you’re interested in finding index funds based off other indexes, you can find them and invest in them as you so desire.
The difference in a Index fund and a mutual is that mutual funds are purchased and managed through a stock broker. The index fund can be purchased by anyone and you don’t have to be a stock broker. To get a more detailed understanding of this, feel free to read my article on Mutual Funds vs Index Funds vs ETFs.
What is an ETF?
An ETF is practically the same as an index fund, but you can trade it like an actual stock. This can be done multiple times during the day while the stock market is open for business. The index fund can only be traded once per day. Some people love to have this type of control as an option, but for me, it is sheer temptation.
An index fund is more of a passive strategy where you make purchases, and then you don’t touch anything for a long duration of time. This is because you are not able to trade more than once during the day. ETFs, gives you the option to take more of an active approach and control, where you have the ability to buy and sell your investments as much as you want during the day.
I personally like the plan of buying and holding so that I can reap the long term benefits of my investments. Since index funds typically perform between an 8%-23% return on investment, my desire is allow it to passively mature and grow by itself. ETFs will mature and grow, but if you want to sell your portion of investments, you have the option to do so. Call me lazy, but I do not have any interest in watching the stock market so close as to whether it is doing 50 cents better than yesterday or not.
How much to invest in order to become a millionaire? (The Exact Formula)
Unlike 401k options and IRA options, you do not have any limits as to the amount you contribute, the length of time, your income from working, or anything like that. You have total power of how much you invest, and how often you contribute. Keep in mind, that this strategy is more of a long term approach to investing, however, you can speed this process up as fast as you like if you so desire. Either way, you will be making a great decision.
There are a number of great index funds out there that you can invest in that will yield some phenomenal returns. There is a general rule of thumb that the market performs at a 10% profit. When dealing with investments and the stock market, 10% seems to be the barometer of greatness, meaning that if your investments bring you a 10% yield or HIGHER, you’re doing great. Since we are talking about a low risk, index fund, we don’t want anything that performs under that.
I created some graphs below that will show you how it would look if you were to select one of these index funds, and you were to invest a certain amount for a duration of years. After all, I’m here to show you how to be a millionaire!
Here’s a graph that shows you how it will look if you invested $200 each month for the next 10 years with an initial investment of $5000.
Here’s a graph that shows you how it will look if you invested $200 each month for the next 10 years with an initial investment of $10000.
Here’s a graph that shows you how it will look if you invested $1000 each month for the next 10 years with an initial investment of $5000.
Here’s a graph that shows you how it will look if you invested $1000 each month for the next 10 years with an initial investment of $10000.
What Index Funds To Purchase
Index funds come in a variety of different shapes and forms as I explained previously. All index funds are not made equal. Some bring better dividend yields than others, and some have a higher cost than others. So which ones should you invest in? Don’t worry. I got your back. Here are some simple rules to follow when making your next investment with index funds.
Make sure the expense ratio is at .02% or lower. If you want to gamble a bit, don’t go no higher than .04%.
-Only purchase something that gives you dividends.
-Find something that yields at least a 1% dividend
-Try to find something that is generally a yield of 10% growth at minimum
-Ensure that the historical growth has an upward projection.
If you follow those simple rules, it really be extremely difficult to select a bad index fund to invest in. In order to view this type of information, go to the investing platform of your choice, and use the search capabilities to find what you’re looking for. My platform of choice at the moment is M1 Finance. You can control everything on your phone with the tap of your finger.
Other good platforms include Robinhood, Vanguard, Schwabb, and Fidelity. Sometimes you will only be able to find exclusive index funds with the companies such as SWPPX with Schwabb or VTSAX with Vanguard. This is ok as well. Below are some notable Index Funds and ETFs from the different platforms:
M1 Finance
VTI – Vanguard Total Stock Market Index Fund ETF
VOO – Vanguard 500 Index Fund ETF
Vanguard
VTSAX – Vanguard Total Stock Market Index Fund Admiral Shares
VFIAX – Vanguard 500 Index Fund Admiral Shares
Schwabb
SWPPX – Schwab® S&P 500 Index Fund
Fidelity
FSKAX – Fidelity® Total Market Index Fund
Pros and Cons of Purchasing Index Funds
Although investing in the stock market is not a guaranteed, sure-fire, risk-free way of being profitable, historically, it is nearly the best way. When you look at the entire history of the stock market, it has been on an upward trajectory since it’s birth. Since index funds nearly mirror the stock market, that means you can nearly bank on it’s positive yields over it’s lifetime.
On the other hand, there will always be a downside to something. I’m not saying that all good things have to come to an end, but I do want to tell you that just like an argument, there is ALWAYS 2 sides to every story. When it comes to making the decision on purchasing index funds or not, there are a few things that need to be considered. Below, I’ve listed pros and cons:
Pros
-Index funds are backed by the proven historical data of the upward trajectory of the stock market.
-There is very low risk with this method of investment.
-You do not need a specialist to help you because this is a passively managed method of investing.
-Holdings are extremely diversified, making it a safe net for low risk investors.
Cons
-Since we are not talking about ETFs here, you do not have the option of trading daily with index funds.
-Low risk, low reward. High risk, high reward. If you like to take a gamble on certain stocks and win big, this index funds is not the choice for you.
-Can be a bit more expensive than it’s equivalent ETF
How do I purchase Index Funds To Start My Investment Portfolio?
The beautiful times that we are living in puts us at an huge adventage over the those who wanted to invest and grow their portfolios from decades ago. Back in hte day, you had to go through a broker of some sort in order to purchase your holdings, and such. This would cost you money, and ultimately tens-of-thousands of dollars after small fees were charged to your account. The person managing your account gets paid, no matter if your portfolio does well or not.
Now, you can make changes and access anything that you need at the flick of your finger, thanks to our phones and computers. You no longer have to go an an angency like Edward Jones (I have an Edward Jones account), and pay someone to watch your portfolio. Not only does this mean more money in your pocket, but it also means having access to your investments at any point, anytime, anywhere.
“Ok Antonio. You’re talking a big game here. How in the world do I purchase these Index Funds?”
I’m glad you asked 🙂
Everything that I will recommend to you can be accessed via phone or computer device. There’s no need to be intimidated by this stuff because you don’t have to speak to anyone in order to take hold of your future. With that said, here are the 4 top ways that I recommend you beginning your investment portfolio:
M1 Finance
This platform happens to be my favorite at the time of writing this article. It is a fun, light-weight, but extremely powerful platform that allows you to purchase stocks of many kinds, along with the ability to participate in fractional investing.
Let’s say that you’ve always wanted to have an apple stock but you don’t have the $143 that it costs (at the time of writing this article). If you only have $20, M1 Finance allows you to purchase $20 of the Apple stock, which means that you’re a part owner!
As time goes on buy, eventually you will have put enough money towards that stock and you will have paid the necessary amount to be an official owner of that holding! This is extremely powerful because now you can invest i nthings that you never thought were possible, and you can literally see the progress that you make as the gains come in!
M1 Finance works with something called “Pies ” and “Slices”. To put it plainly, your pie is a representation of your investment portfolio. A slice of that pie are the individual holdings that you have within that portfolio. If you’re able to look at a slice of, you will be able to see a portion of the pie, make changes to it if you so desire, add more slices to the pie in the form of different holdings, and etc. I think you get the point.
Due to it’s visual nature, I love this platform. I’m not an expert investor just yet, so I like to click on things while on the computer or my phone and see what is happening. M1 allows me to see how things are performing, I can researech other things within the platform, depositing funds is very simple, selling is easy, I can see my dividends come in…it doesn’t get any better than that.
Robinhood
Robinhood is the fist platform that I have heard of that allows you to give you access to your investment portfolio by way of your fingertips with your phone. I found this to be so powerful. Although it was new and powerful, I can be very hesitant to jump on things that are brand new, where the masses are not using it yet. I work in the IT field and sometimes my knowledge of cybersecurity vulnerabilities can get in the way of taking advantage of huge opportunities.
I watched my wife get involved with Robinhood, and after glancing at the ease of access, I began to lean into the use of the platform. You can literally sign up, buy and sell, and see the performance of your portfolio. This is visualized through graphs and stats on the phone.
I truly love how straightforward Robinhood. M1 is “fun-looking”, it’s more appeasing to the eye for me because I am a visual learner, but I don’t feel like it is as straightforward as Robinhood.
Conclusion
Learning to become a millionaire by investing is not the only way or even the “best” way to get there. However, hitting this mark of achievement is one of the most low-risk and sure ways of becoming a millionaire. If you follow the simple track of remaining consistent in your investments, not taking your gains or dividends out, and taking the slow & steady approach, the question becomes a matter of time, not a matter of if you will hit the mark or not.