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How To Become A Millionaire: Index Fund Investing For Beginners

what's up you guys it's Graham here so

let's cover one of my favorite ways to

invest ever besides real estate and I

would even go so far as to say that this

is the best safest and easiest long-term

investment strategy out there for most

people and also this is the investment

strategy that requires very little work

no skill needed and still has some of

the best returns out there and even more

surprising what if I told you that this

investment outperform 99% of individual

investors and almost 95% of hedge funds

and this is something you can do with

about 20 minutes of your time and yes I

know that you know what I'm already

talking about here based on the title of

the video but let's drum up a little bit

of suspense because talking about

Vanguard index funds so let's go over

exactly what an index fund is how it

works and how you can set this up

yourself in a matter of minutes to

profit long term and maybe one day get

like lambo rich or like yacht rich or

buy private islands or whatever you want

anyway index funds but really quick I do

just want to mention that this video is

not sponsored by Vanguard I had no

financial incentive if you use them or

not I don't have any affiliate links to

Vanguard if you buy their funds or if

you don't decide to buy their funds I

have no financial affiliation with

Vanguard whatsoever

I just happen to think this is a great

topic to talk about I truly believe in

this strategy long term I do it myself

and also I have a lot of data and

research the backs of everything that I

talk about so all I ask in return is if

you guys enjoy videos and topics like

this to go ahead and gently tap that

like button it helps up the channel

tremendously if you do that so it just

takes one fraction of a second to go

ahead and do that that's it and enjoy

the video so first of all let's start

here what exactly is an index fund an

index fund is really just a group of

investments that you could put your

money into and then you own a percentage

of the entire thing here's an example

imagine if I owned a thousand apartment

buildings in there each worth one

thousand dollars I go to you and I say I

will sell you one of my buildings for

$1000 that would almost be like the

equivalent of you going and buying one

stock of one individual company but the

problem here is that now you only have

one apartment building or one investment

and what happens

if that investment doesn't do very well

or maybe that one company you invested

in has a CEO who loves to talk on

Twitter and he ends up saying some

stupid stuff that gets him in trouble

with the SEC and that company doesn't do

very well in the short term how do you

prevent something like this well here's

the solution to this imagine in my

previous example where I gave you a

scenario where instead of investing a

thousand dollars and you buy one of my

thousand apartment buildings imagine if

you could invest $1,000 and then you get

0.1% of everything that I own so you're

a small percentage owner in all of my

apartment buildings this way you get an

averaged return based off everything

that I own this is basically an index

fund for example you can own all of the

top 500 publicly traded companies here

in the United States for the low price

of just about 260 dollars this way

you're not just buying one stock in one

company but instead you're buying

literally all of them and also with

index funds you can do this with pretty

much any market out there if you want to

own a small portion of pretty much every

single international stock out there

well you can do that from the low price

of just twenty eight dollars where you

can own a small portion of the entire US

stock market for the low price of just

seventy dollars and it doesn't stop

there because there are index funds for

pretty much any single market out there

like you want to invest in bonds well

here you go or if you want to buy a

whole bunch of real estate but you don't

want to get just one REIT well vnq

offers all of this with a whole bunch of

office buildings and hotels your money

ends up going a very long way when you

start doing this but that thin lens the

question why exactly does this make such

a good investment and also why haven't

you already smashed that like button if

you didn't do that earlier all right so

let's start here the biggest advantage

with index funds is that they have very

low fees that's because these indexes

are very simple to put together they're

very simple to manage there isn't much

overhead and all of those savings get

passed on to you as the investor and

this is what's known as a passively

managed fund you're buying into an

entire portfolio of stocks that

automatically gets balanced and adjusted

over time without doing any work and

paying as low as 0.03 to 0.04 percent

annually to do so

is the total opposite of what's called a

mutual fund and this is a fund that

employs professional stock pickers who

buy and sell stocks over time to try to

beat the market average however all of

the additional overhead expenses

associated with doing this as well as

all the fees associated with buying and

selling ultimately get passed on to you

as the investor in the form of much

higher fees and all of that is without

the guarantee of actually beating the

market in the first place and speaking

of that when you compare the performance

between the two both index funds and

mutual funds it's found that only 22% of

actively traded funds have actually beat

the market over a ten-year period that

was it only 22% actually achieved that

result so that means that in 78% of

situations you're better off and would

have made more money just investing in

an index fund over ten years

the second advantage with doing this is

that for most investors out there they

will make more money investing in an

index fund than they would investing in

individual stocks on their own several

studies have shown that over 92 to 95

percent of portfolio managers could not

outperform the market index over a 15

year period and keep in mind that these

are people who are the brightest in

their field who have gone to Ivy League

schools with a really deep understanding

of economics and finance who do this

full-time daily and not even they can

outperform just the market index and

those figures are so so so much worse

for the average individual investor a

big reason for that is that many

investors tend to trade emotionally and

panic when the market drops then they

try to time the market or they jump in a

stock as it's going up for fear of

missing out and it's because of that

that usually correlates to much lower

than average returns and also in an

interview in 2017 Warren Buffett went so

far as to say that attempting to pick

times to buy and sell stocks is a

mistake for 99% of the population Warren

Buffett even went so far as to bet a

collection of hedge fund managers

$1,000,000 that they couldn't beat the

market over a ten-year period and

outperform an index fund literally a

standard Vanguard index fund outperform

the best hedge fund managers in the

entire world for a million-dollar bet

and if the wealthiest living person

right now is telling all of us to go and

buy index funds then I have a feeling

that is something we should probably

listen to the third advantage of going

and buying index funds is to have a huge

amount of diversification like even if

you have 20 individual stocks in your

stock portfolio if one of those goes

down and fails you can end up losing a

lot of money on the other hand if you go

and buy the entire S&P 500 index funds

you have 500 different stocks and

different companies that weight your

overall return and even if one of those

fails it doesn't really matter because

you have 499 others to boost you up this

means that having a few individual

companies go up or down in the markets

in the short term won't really affect

your overall return because you're

betting long term that the market will

rise overall as a whole and also doing

this as an investor will give you a lot

more market stability because let's be

real most people can't handle the market

volatility and as soon as they see it go

down they panic and they freak out and

they sell it and then they see it going

back up and they buy back in because

it's going back up now and they don't

want to miss at all the money they can't

handle any sort of market volatility so

just by virtue of that and recognizing

the human tendency that we tend to freak

out over the smallest things and panic

and get emotional an index fund would

solve most of those issues and forth the

reason I invest in index funds is my

only other investment besides real

estate is because it takes no time to do

and it's easy I just love the simplicity

of it I also fully acknowledge that I am

NOT a stock market expert I cannot buy

and sell stocks that will consistently

beat the market long term nor do I want

to spend all of that time reading stock

charts reading news and reading earnings

reports that would allow me to make

those types of decisions and even if I

took all the time to do that and I

really dedicated myself to trading

stocks and trying to beat the market if

95% of hedge fund managers the most

skilled people in the world cannot

consistently beat the market long-term

what makes me think that I can I know my

limitations and I will just work around

that so instead I will just invest in

the entire

get sit back relax and focus my time on

other areas that will make me even more

money than I can reinvest back into the

markets and I would even go so far as to

say that for most people watching they

would be best off just investing in an

index fund to get the highest overall

return long time and I got to say that

by doing this it is so much less

stressful it's literally just a buy it

and forget about it mentality there is

no panicking in the middle of the night

worried about like earnings reports

tomorrow there is no worries about like

SEC allegations or companies going down

or profits falling this this no worries

whatsoever for me I just know that index

funds are my second largest investment

besides real estate and I have no

concern that long-term overall the

market will be trending up alright so

with that out of the way what's the best

way to go about doing this and also

which are the best investments for you

to buy now my favorite index fund

investing method is what's called the

three fund portfolio this is also one of

the most popular index fund investing

strategies that like I said earlier

beats 99% of individual investors

long-term over a 10-year period and as

the name suggests it obviously consists

of three funds obviously funds number

one is a US stock market index fund

number two is an international stock

market index and fun number three is a

bond market index and that is it this

gives you the broadest diversification

at the absolute cheapest cost and is

going to give you the highest returns

overall from just about almost anything

else that you can do in your own and not

only that but because you're investing

in multiple asset classes you have three

almost uncorrelated markets that you

have your money into so that way if

something happens to one you have two

others that would balance that out so

how easy is this then to do well here

are three funds that Vanguard has that

would basically be the entire portfolio

first you have US stocks and that would

be the Vanguard total stock market index

fund

vt sacks then you have international

stocks with the Vanguard total

international index fund VIX and then

you also have bonds the Vanguard total

bond market index fund V blue

it's a good vivix vivix Alexis it's

Vivat Alex that's that's what it is

now with this in terms of how much and

which to buy it really depends on how

close you are to retirement the general

rule of thumb when it comes to this is

that the further you are from retirement

the more aggressive you could be with

your portfolio which means the more

stocks that you should have likewise if

you're closer to retirement the less

aggressive your portfolio should be the

less risk you should take and therefore

the more bonds you should have so this

means if you're anything like me and

you're in your 20s or 30s chances are

you would be fine with seventy to ninety

percent in stocks and then 10 to 30% in

bonds and then just buy it and hold that

for 30 to 40 years that also gives you

the best chance to recover in any sort

of market drop in the short term because

you know that over the long term it's

going to be going up in value over time

and also if you're a few years away from

retirement it might be a good idea to go

like 80 to 85 percent bonds and then

maybe 20 to 15% in stocks so that way

you have a much safer stable return in

retirement when you need the money now

when it comes to me personally I am

putting seventy percent in US stocks 20

percent in international stocks and then

10 percent in bonds and then I'm

planning to hold all of this and

contribute to it regularly over the next

30 years without changing it up without

doing a single thing it just by hold

reinvest hold buy more holds keep

holding

keep holding keep buying more and then

holding that's it and like I said for

most people this would have the highest

returns of just about anything you can

do yourself in the stock market long

term overall on average that means that

I won't get people in the comment

section being like well this is bad

advantage because I bought Amazon 15

years ago and now it's worth 10 million

dollars so that's really bad advice

Graham my stocks are up 50% this year

I'm just saying long-term consistently

long-term I'm not talking about the few

people who got really lucky with stocks

or the 1% that was able to do this

successfully long term I'm talking

overall to the 99% of people watching

this

right now and even though with me real

estate has been my number one investment

over the last ten years I still invest

in index funds because they totally

recognize the benefit the

diversification and the stability of

doing this long-term for a relatively

low cost but then what about when it

comes to market timing since we're

nearing all-time highs again does this

mean it's a bad time to invest or is

this a good time to invest from what do

I think when it comes to this and this

is probably one of the most common

comments that I get anytime I talk about

the stock market and thankfully this is

a relatively easy one to answer the

truth is that no one can accurately and

consistently predict what the market is

going to be doing in the short term it

wasn't even two months ago that the

market was crashing the bull run was

over everyone should sell everything and

hold cash and then buy back in at the

dip and then like two months later we've

almost entirely recovered and everyone

is taking back what they said and like

oh well no the market isn't really

crashing it's it's it's actually I never

said that so with that said there have

been dozens if not hundreds of studies

that have been done on this that proved

that time in the market beats timing the

market in the majority of situations and

a study done by Charles Schwab they

found that in 74% of situations you're

better off investing immediately and

holding for twenty years then you aren't

trying to time the lowest point of the

market and then riding the wave no one

could predict what the market is going

to be in the short term so why even try

instead I just invest whenever I have

the money with the expectation of

holding it one to two decades and I will

come out ahead now in terms of actually

doing this it is really just as simple

as going to Vanguard calm opening an

account typing in your checking accounts

information and then you're pretty much

good to go within like 20 minutes and

all you need to do after that is just

keep buying the same investments over

and over and over again and expect to

grow your wealth at the same rate as the

entire stock market even though I made

this video specifically about Vanguard

index funds there are other brokerages

out there that you can feel free to use

as well fidelity happens to be a very

good example of another company that I

would love to use besides Vanguard so

the answer is no you do not need to

invest with Vanguard but if you decide

to go elsewhere at least make sure that

their fees are on par or lower than

Vanguard so that way you're not leaving

extra money on the table and that's

pretty much it that's all you have to do

it's really easy it's really basic it's

really simple and that strategy will be

99% of individual investors out there

for a very low cost I mean it's really

just there's nothing not to like about

this so with that said you guys thank

you so much for watching I really

appreciate it if you guys made to the

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time