Index Funds are so damn boring!
But it's the safest path to wealth
Top 10 holdings of Vanguard’s VOO Index Fund
Just something about the human ego, we always want to be right about everything. Working in sports I love making predictions about who’s going to win a game or championship. In reality, I have no freaking clue who’s going to do what but if I’m correct, I’m a genius and get bragging rights! I stupidly took this approach when investing in the stock market, trying to pick a handful of companies so I could look smart when I made tons of money. Wrong!
While I’ve built a portfolio I’m proud of, there was a ton of trial and error. I was sometimes picking companies because I saw someone mention it on YouTube without doing much research. Or a friend would tell me about this stock that was poised to blow up next. I didn’t even know what some of the companies in my portfolio did on a day-to-day basis. ALWAYS research a company before you invest and if you don’t understand it, don’t put money in. It’s that simple.
The great Warren Buffet has praised investing in low-cost index funds as the easiest and safest way to build wealth. An index fund is a basket of companies that track the performance of a sector/index in the market. For example, an S&P 500 fund holds the 500 largest companies in the world. Think Apple, Microsoft, Amazon, etc. Symbol $VOO is one of the more popular funds offered by Vanguard. If you started at zero and invested $500 a month into $VOO for the next 30 years, assuming a 10% growth rate, you’d end up with 1 million dollars. Check out the illustration below via Nerd Wallet's Investment Calculator.
But damn, who wants to wait that long? Because I’m young, I’ve taken the index fund approach with a little bit of risk on the side. I currently invest in an S&P 500 fund but I’ve picked some well researched individual stocks on the side to catch some high growth. Way I see it, I have time to make mistakes before retirement. But the bulk of my money will be in index funds to at least keep me safe in the long run.
Anyone who has time on their side should take some thought-out risk. Not all of your money, but a small portion that you’re willing to lose. The risk/reward could be amazing. But if you don’t want the stress of checking in on 10 companies every week to see how high or low the stock price is going, just get an S&P 500 index fund like $VOO. It’s less stressful, simple, and managed by people smarter than you.
Disclaimer: I am not a financial advisor and thoughts here are my own. You should always do your own research!