Stoping making your life so difficult.
Simplicity is the ultimate sophistication.
The easiest way to build wealth in the stock market is through index investing.
What is an index fund?
According to investor.gov and index fund is a mutual fund or ETF that seeks to track the returns of an overall.
VTI – Vanguard Total Stock Market Index Fund is an exchange-traded fund that tracks the entire US stock market. The fund currently holds 3,500 individual stocks/companies.
VTI practically guarantees that you will grow your wealth in the stock market over time. Because the US and the world economy historically continues to grow. As the investor buying into VTI means that you believe in 10, 20, 30 years from now the stock market is going to be more valuable than it is today.
Since 1926 till today the stock market has returned an average of 10-11 percent per year, based on the data. And that number is compounded each year.
If this year 2020 has taught us anything it is that the unknown can happen. The stock market does not go up every year and some years it takes a beating. But after all the market crashes it continues to set record highs.
VTI is EASY money. Everyone should hold VTI in their portfolio. What VTI tracks the entire market. What are the chances that every single company on the market goes bankrupt? Do you think Google and Apple and Exxon Mobil and Wal-Mart are going to be smaller and less profitable tomorrow than they are today? I don’t.
The advantages of VTI
- Easy to buy and sell. This ETF is traded on the market and is quite popular so there are always people buying and selling into this fund.
- Diversification – You will own a piece of more than 3,000 stocks.
- Low expenses – Nothing kills returns faster than fees and taxes.
- Mental Energy – It takes a lot of time, emotion and mental energy to buy and sell individual stocks. If you invest in this fund you can get on with your life and outperform the vast majority of people.
2 Ways to make money in the stock market
- Capital Gains – When a stock increases in prices. The different between when you bought and sold is capital gains or capital losses.
- Dividends – Many companies pay quarterly or monthly dividends which means that you will receive dividends for owning this fund. Careful, you have to pay tax on dividend income.
With VTI you will get the best of both worlds, capital gains and dividends.
Disadvantages of VTI
- Volatile in the short term – Sometimes the market goes down and so will your investment. But be smarter than the herd. Invest when prices are low and wait for them to rebound. You should be Dollar Cost Averaging into this fund as much as possible.
- A low fee is still a fee. You could purchase individual stocks on the market for free these days. One could argue that how the business pay its management is also a fee that is paid by the shareholders, but that is another article.
- Lower returns than certain businesses – VTI practically guarantees returns, but those returns may not be as large as Google or Facebook. Some business gains will out pace VTI. But then some businesses will crash and burn, cough General Electric cough. The big question is can you pick the winners vs the losers. Data shows that the market does better than individual in the long run.
- Ethical investing – Maybe you do not want to invest in oil/gas, gambling, marijuana, beef/chicken, alcohol or defense businesses. Well you do not get to pick and choose which of the businesses the fund is invested into. Everything goes in the fund. If you are an investor interested in those funds there are many ESG funds out there to be invested into.
What are your goals?
Do you want to build wealth in the stock market or some other way. Lots of people make a fortune investing in real estate or starting their own business. If you want to build wealth in the market VTI is a great place to start. Start right now.
Open your account with M1 Finance, or whatever platform works for you and invest in the fund today. Even if it is just $5. Because it is better to be in the market and taking advantage of the gains than it is to be sitting on the sidelines. You do not get any capital gains from your money sitting in the bank. The longer you are in the market the more dividends you will receive and can be reinvested into the fund.
Start with any amount and the dollar cost average. That just means put more money into your investment over time. You should be focusing on your income more than your investments. Because you need income to be a continuous investor. Once you see your stock market portfolio increase this will encourage you to keep investing.
Time is of the essence. You need those compounding years to really grow your VTI investment. If you want to retire via a 401k or stock portfolio you need time in order to make that happen.
I love diversification. I like have multiple savings accounts: ROTH IRA, HSA, Checking, Savings. Because if one ball drops, I have other balls that I can use to keep me floating.
If you start investing in VTI and create a solid foundation that grows in time, you will have a cushion to take more risk.
Maybe you put 90% of your portfolio and then try and invest the remaining money into individual stocks that you believe are winners.
When you have money you have options. Having a guarantee in one area means that you can take risk in another area. But still remember that you main focus should be increasing your income.
Picking individual stocks
When I began picking stocks I made every single mistake. Bought a stock simple because it paid a high dividend. Bought an oil and gas stock before doing any research. And I lost so much money.
But I also made a few smart choices. Like buying Facebook after going public, because I believe the popularity of social media was going to increase. And buying into Dollar General during the 2008 crash, because they sell low cost items that people could afford.
For my best advice on how I pick stocks sign up to receive my weekly email and I will tell you the path I used to create a six figure portfolio.