updated September 26, 2022
As allied health professionals, we are BUSY, amirite? We don’t have time to sit at a desk all day and day trade!
And let’s be real, if you’re not in that realm (and even if you’re in that realm – cue the distain from those people lol), it’s a HUGE gamble.
Actually, most professional investors tend to not even keep up with the market in the long term. So since we can’t control the market, let’s focus on what we can control, which are the fees! And this is done by investing in index funds.
What are Index Funds?
Index funds are mutual funds or exchange-traded funds (ETFs) that are designed to track the performance of stock market (or bond market) indices such as Dow Jones, NASDAQ, and the S&P 500.1 So instead of hand-selecting the stocks you hold, the fund’s manager buys all (or a representative sample) of the stocks or bonds in the index it tracks.
Index funds are a form of passive investing. It puts emphases on diversifying your portfolio, and with low portfolio trading activity. This allows the risk adverse (aka, me) to let their money grow with enough return to meet their financial goals.1 It allows you to pay low fees and brings diversification of a few asset classes. The end goal is that you hold onto this for the long term.
Index funds allows you to not worry about spending your precious time researching different stocks. You don’t have to pick and choose which ones you think will do well. For me, I prefer to invest as passively as possible. And this is because I’d rather spend time doing other things that I enjoy more. This is why index funds work for me!
What Is The Most Popular Index Fund?
The most popular fund that JL Collins in his book, A Simple Plan to Wealth, advocates for is the Vanguard Total Stock Market Index Fund (VTSAX).
It is designed to provide investors with exposure to the entire U.S. equity market. This includes small-, mid-, and large-cap growth and value stocks.
Because of this broad diversification, it is a great way to diversify your portfolio in one easy fund. And you can automate putting money into it monthly, so you never have to think about it!
How Are Index Funds Fees So Low?
When John Bogle founded the investment management company Vanguard in 1975, he wanted to make investing easy and accessible to the common folk (aka, you and I). Bogle wanted to return net profits to its shareholders in the form of lower costs. So he did so by creating index funds, which eliminate sales commissions and minimizing operating expenses.1
The average Vanguard mutual fund and ETF (exchange-traded fund) expense ratio is about 83% less than the industry average – 0.09%, while the industry average is around 0.54% . This means that over time, as your money grows, this low expense ratio is saving you thousands of dollars!
Warren Buffet even stated that, “A low-cost fund is the most sensible equity investment for the great majority of investors… By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals.”3
As a know-nothing investor, I think I’ll be taking my advice from the legendary investor Warren Buffet on investing in index funds!
Which Index Fund Do I Choose?
So I can’t tell you what to invest in (see my disclaimer below). We personally have selected Vanguard as our primary, and we took that advice from not only JL Collins, but from ChooseFI and Invest Like A Boss.
Other companies such as Fidelity have their own index funds as well, but do your own research and see what would work best for you personally. I have only highlighted Vanguard because that’s what I currently invest in and what I know the most about.
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If you want to learn more about investing in low cost index funds, or if you want mentoring in your finances, let’s work together to help you on your personal finance journey! Click here to sign up for your FREE 20 minute consult.
Resources:
- Vicki Robin, Your Money or Your Life, Revised edition (New York, NY: Penguin Books, 2018)
- John C. Bogle, The Little Book of Common Sense Investing: The Only Way To Guarantee Your Fair Share of Stock Marker Returns, 2nd edition (Hoboken, NJ: Wiley, 2017)
Note: I am not a certified financial advisor/planner or a certified financial analyst or a CPA or an accountant or a lawyer. Remember, I am an allied health professional, just like you! This website/blog is for entertainment and educational purposes only. Please consult with your financial advisor(s) regarding your personal finance, investment, and tax matters.
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