Can Index Funds Make You Millions?

I was scrolling through our Youtube videos and realized that Amon and I reached a milestone – we have officially posted 150 videos on Youtube! Our most popular video: How We Became Millionaires with Index Funds.

I LOVE that this is our most popular video because understanding index funds is like understanding a fundamental piece of the FIRE puzzle – and Amon and I designed our FIRE puzzle with index funds at its core.

For us, index funds have served as the foundation for our FIRE journey . . . and we aren’t the only FIRE-ers investing in index funds. Lots of people on the FIRE journey invest in index funds! And I’m not writing this to be persuasive. I’m not trying to force a sales pitch. I get the whole “bandwagon technique” advertisers use to sell products. That’s not my thing. I’m not trying to sell you index funds. It’s just that investing in index funds have worked so well for us. I feel the need to, at least, share a little bit about them.

First, in my opinion, index funds are pretty awesome! They, literally, made us millions.

And when I say “literally,” I mean literally (how it’s meant to be used) – not figuratively . . . and definitely not to emphasize a point. Side note – why is the term “literally” so often used to incorrectly emphasis a point? The other day, I was watching a video when the host said to me (and everyone else watching), “I will teach you everything step by step. I’m serious. I will ‘LITERALLY’ hold your hand.” First, I’m pretty sure she wasn’t going to literally hold my hand. Second, I don’t even know her. Third, holding hands with a complete stranger would be weird. And fourth, I’ve gone off on a tangent . . . time to get back on track.

Index Funds!!!

Amon and I love index funds. They’ve worked really well as a part of our investment strategy, which is why we love telling everyone about them. If you’ve never heard of index funds (or need a refresher!), here’s a quick breakdown along with some notable index funds you may want to look into!

First, a definition . . . and some history: Index funds are a group of stocks, bonds, or other securities that track a specific index. The S&P 500 is an index, so an S&P 500 index fund is designed to invest in the same companies that make up the S&P 500. The idea is that, in this example, by holding the same companies in the S&P 500, an S&P 500 index fund would basically track (or mirror) the performance of the S&P 500.

To be clear, index funds are mutual funds. But, index funds are not actively managed mutual funds. There’s a difference. Actively managed mutual funds are managed by a mutual fund manager, whose goal is to outperform the market. That’s one of the big distinctions: index funds track and mirror; actively managed mutual funds try to outperform.

Pretty basic, right? There’s nothing very novel or extraordinary about the index fund. BUT when the first index fund was created back in the 1970s by Jack Bogle (the founder of Vanguard), mutual fund managers went wild! In a world where investors were paying hefty fees to “expert” mutual fund managers, the creation of the index fund threatened the livelihood and pocketbooks of mutual fund managers. And, rightfully so. With the creation of the index fund, everyday investors were able to begin more easily investing on their own.

And, by everyday investors – I mean you and me! With index funds, we can invest on our own. There’s no middleman, no actively managed mutual fund manager, no high expense ratios. The best part – index funds have historically performed better than actively managed mutual funds. Plus, index funds typically have lower costs associated with them compared to actively managed mutual funds – which means more money for you!

Like I mentioned, index funds have literally made us millions! Our main investments are in a total stock market index fund (VTSAX) and an S&P 500 index fund (VFIAX) with Vanguard. But, Schwab also has a popular total stock market index fund (SWTSX) and an S&P 500 index fund (SWPPX). Fidelity is also popular, with a low-cost total stock market index fund (FZROX) and an S&P 500 index fund (FXAIX).

If you’re interested in diversifying your portfolio and owning low cost investments, perhaps you should check out index funds. It made us millions – maybe they can do the same for you!

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