How You Can Become A Millionaire: Index Fund Investing For Beginners

Wanna hear something super cool?

If you save $200 dollars every month, kind of like putting it aside for later, and let it grow by 8% each year, and you keep doing this for 45 years, you'll have more than a whopping one million dollars!

Yeah, that's a lot of money.

To be really honest, when someone first told me this could happen by investing in index funds, I was totally lost.

It felt like they were talking in a secret code or something.

But today, I decided it's high time I write an article that breaks it down step by step.

Oh, but just to be clear, I'm not a money expert.

I'm a business guy, and I'm sharing what's actually worked for me in real life.

I always thought of index funds as my safety net.

If my business didn't do well, I'd still become a millionaire with these investments.

By the way, if you like this article, please share it around. It helps more people see it.

Now, let's dive into:

Part One: Uncovering Some Secrets

Lies About Investing

Alright, let's get straight into it. You've been told some not-so-true stuff about investing for a long time.

Back when I was a kid in school, I asked my teachers about investing, and they always said it's only for rich folks who can pay experts to do it for them.

So, I thought it wasn't for regular folks like me because I'm not a pro, I didn't have a lot of money.

My friends didn't help either.

One of them told me I'd have to read lots of financial newspapers, figuring out those tricky charts, and he made it sound like a big waste of time.

Even my family got nervous when I talked about investing.

They thought it was super risky and not for regular people.

My dad even said I'd lose all my money if I tried it.

Can you believe that?

Well, guess what?

These are the lies that the so-called experts want us to believe.

They know that investing in index funds is actually really easy.

You don't need tons of money to start, it's not that risky, and over time, it can make you more money.

The surprising truth is that those fancy pros who manage your money often do worse than index funds.

And here's the kicker, even if they lose your money, they still charge you fees.

Can you believe that?

But now, you've taken what they call the red pill, just like in my favorite movie, "The Matrix"

You've woken up to the truth. So, let's move on to:

Part Two: Understanding The Game

When I first started investing, I was scared of making mistakes.

But once you learn the language, it all gets much easier.

And that's what we're going to talk about in this part.

What's An Index Fund?

I've been talking a lot about index funds in my videos and articles, so I figure it's time to explain what they are and why they're pretty cool.

I'm a big fan of football, and if you've ever watched sports, you've probably seen a league table like this one.

The better a team plays, the higher they are on the list. But if they play really, really bad, they might get kicked out of the league.

It's almost like an index.

Instead of teams, it’s a list of companies.

Take the S&P 500, for example. It's a list of the 500 best companies in the U.S., with big names like Apple, Microsoft, Amazon, and Tesla.

Now, here's the sneaky part about index funds. They let you invest in every single company on that list with just one click, it’s like magic!

It's kind of like my friend who picks a different football team every year, hoping to choose the winner each time.

So, when you invest in index funds, even if a few companies don't do well, the ones that are doing great help balance things out.

Over the past 10 years, the S&P 500 made an average of 12.39%, which is pretty good.

But here's the real kicker:

no one has ever lost money if they held an S&P 500 index fund for more than 20 years.

So, if this way of investing is so smart, why do some people still pick individual stocks?

Why Buy Individual Stocks?

Well, you know, I do this just for fun sometimes.

I also think some companies are making cool stuff for the future, but they're not making much money right now.

So they're not in the popular index funds.

So from time to time, I put some extra money into these companies, so I don't miss out on anything exciting.

What's A Roth IRA?

You might hear people talk about things like:

Roth IRA in the U.S.
stocks and shares ISA in the U.K.
TFSA in Canada
Supers in Australia

But what's the deal with all these?

Well, these are special accounts that help you make money from your investments, and guess what?

You don't have to pay taxes on the money you make, but there are rules about how much you can use them because they're like super shields!

Let me break it down.

Imagine if Captain America just kept his shield at home. He wouldn't be as awesome. But when he takes that shield into a fight, he's super strong.

So these accounts are like your shields.

Use them when you're investing.

One way to do this is by using the money in your special account to invest in index funds.

You get to keep all the money you make because the government won't take a piece of it.

Cool, right?

Lump Sum vs Dollar Cost Averaging

When I started investing, I wondered if I should put all my money in at once or do it bit by bit.

People argue about this a lot, so I'll tell you what I think.

Putting all your money in at once is riskier.

But if I'm investing in something that I know will grow over time, like an S&P 500 index fund, waiting doesn't make sense.

The longer you wait, the worse your chances.

But if you don't have all the money, don't wait.

Invest what you can each month.

Sometimes you'll buy when prices are high, and other times when they're low.

It all balances out, and it's called dollar cost averaging.

Difference Between ETFs And Index Funds

When you use an investing website or app, you'll see something called ETFs.

They're a lot like index funds, and this confuses people.

Both let you invest in many stocks together.

But here's an easy way to remember:

ETF stands for Exchange Traded Fund. That means you can trade it on the stock market all day.

Index funds can only be bought or sold at the end of the trading day for a fixed price.

Now, which one's better?

If you don't have a lot of money to start with, ETFs might be a good choice.

They often have lower minimum amounts you need to invest, and some brokers don't charge a fee for trading them.

How To Invest For Teenagers

If you're younger than 18 and still watching this, wow, that's impressive!

Most kids your age don't learn about this stuff.

They don't teach it in school.

But here's the deal: you can start investing even if you're under 18.

In the U.S., you can open a custodial account.
In the U.K., it's called a Junior Stocks and Shares ISA.

You just need to ask your parents to help set these up.

Now, here's the secret sauce in becoming a millionaire: time.

And guess what?

You have a lot of it when you're young.

See, every year, as you keep putting money into your investments, something cool happens. Your money grows faster and faster.

It's like a snowball rolling down a hill, getting bigger and faster as it goes. Eventually, the money you're making is way more than what you're putting in each month.

It's kind of like when you see someone take forever to reach 100,000 subscribers on YouTube, but then, in just a few months, they hit a million.

Starting early is like having time as your superpower.

Can Anyone Invest In USA Stocks?

Now, I wanna clear something up.

When folks talk about index funds, they keep mentioning the S&P 500.

It's like their favorite thing.

This S&P 500 is a list of the top 500 big companies in the U.S.

But here's the cool part - you don't have to live in the U.S.A. to invest in it.

I live in Malaysia, and I really like this investment.

It's kinda neat to think that I own a tiny piece of all those huge American companies.

Now, let's move on to:

Part Three: Mastering The Strategy

How Much You Should Invest

Okay, let's break this down step by step.

Lots of folks talk about what you should do, but they forget to tell you how to do it. Well, I'm here to guide you through it.

First things first, figure out your goals.

Let's say you wanna be a millionaire. That’s one of my goals too.

I just needed to figure out how much money I had to put in every month to make it happen.

I really like using these compound interest calculators, and you can find them online if you wanna give it a shot.

Here's the deal.

If you can invest $250 dollars every month and get an 8% return on your investment, in 42 years, you'll have more than a million dollars.

And if you keep investing for another 10 years, you'll have over two million in your account.

Of course, if you invest even more, you'll speed up the whole process.

The Best Websites To Use

Now, the next step is to choose the website where you will set up our account and start investing.

I really like three of them:

Charles Schwab
Fidelity
Vanguard

I like to call them the "big three."

The guy who started Vanguard, John Bogle, is like the granddaddy of index fund investing.

His company, Vanguard Group, was the very first to create index funds, so they're the oldest and most trusted.

Let's take a look at what they've got on their website.

Vanguard Index Funds Explained

To access their full list of funds, go to the "Investing" tab and click on "Vanguard Mutual Funds."

Now, get ready because this page might seem pretty overwhelming if you haven't seen it before.

But don't worry, in a minute, you'll be able to show off to your friends when you understand how to use it.

You see, there are so many options here.

But the main things you want to pay attention to are the "expense ratio," which is how much they charge you each year.

Of course, you want this to be as low as possible, and luckily, Vanguard's fees are generally quite low.

The other important thing is the "average returns," which they nicely break down on the right side of the screen.

However, remember that just because something performed well in the past, doesn't mean it will in the future.

Vanguard likes to keep things tidy and organized.

They've sorted all their funds into different categories, making it easy to find what you're looking for.

Category #1: Bond Funds

These are like the contracts that companies and governments sell when they need money.

If you invest in them, they promise to pay you back later.

Bonds are usually considered low risk, but they also offer lower returns.

So, if you're older, it's a good idea to have more bonds in your portfolio.

Category #2: Balanced Funds

These are designed to match the age at which you plan to retire.

They'll take care of the rest by finding the right mix of index funds for you.

You can see these options in five-year intervals.

It's a great choice if you prefer a more hands-off approach, but personally, I like to be in control of my investments.

It's kind of like driving an automatic car; it does the work for you, but it's not as fun as a manual.

Category #3: Stock Funds

Category three sorts funds by company size, known as "small," "medium," and "large cap."

The Best Index Funds

Here, you'll find something called "VFIAX," which follows our old buddy, the S&P 500.

When you see that little 's,' it means Vanguard thinks this is a good fund.

If you click on it, you can see all the companies you'd be investing in and how risky it is.

Another good one is "VTSAX," which is a total stock market index fund.

It has over 3,861 different stocks!

You can invest in the whole U.S.A. stock market with just one click.

You'll need at least $3,000 dollars to get started, but there's also an ETF version called "VTI" with no minimum requirement.

Then, there are international stocks.

One interesting option is "emerging markets." This one invests in companies in places like China, Taiwan, and India, among others.

But be careful; it's a bit riskier, with a five on the risk scale.

So, if you're like me and want a good night's sleep, don't put too much money into this one.

Category #4: Sector And Specialty Funds

Finally, we have the fourth category: sectors.

If you're really into things like energy, healthcare, or real estate, you can invest in these areas.

There are even more options for sector investing in the ETF.

How Much To Allocate?

Now that we've looked at what's available, I hope it makes more sense.

Here’s how I would personally invest my money.

I could spread it across lots of different funds, but I like to put most of my money into American companies, like around 70%.

Then, I put about 20% in companies from other countries, including the U.K., and the last 10% goes into bonds.

I keep the bonds relatively low because I'm okay with a bit more risk.

But this really depends on how comfortable you are with taking risks.

The specific funds available might vary in your country, but the indexes they follow are quite similar.

So you might need to choose a different fund, but you can still use my percentages as a helpful guide.

Now, I hope this has been a helpful article for your journey to investing and becoming a millionaire.

If it is, please do share this article with your family and friends!

- Ivan