Index Fund Investing: The Ulti…

The Ultimate Index Fund

Investing Guide5 How to Build
Wealth Passively =Low Risk +
Low Cost C High Return) by
Fiona
Investing in index funds is a proven strategy to build
wealth.
In fact, I grew my investment portfolio from zero to
$497,578 in less than 5 years using index funds.

And in this guide, I’m going to share the exact strategies I

used.
Let’s get started!

What is an Index Fund

An index
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Essentially, you invest in 1 index fund, which in turn

invests your money in 100s if not 1,000s of different
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 Essentially, you invest in 1 index fund, which in turn
invests your money
NO, GRACIAS
in 100s if not 1,000s of different
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companies that make up that market index.

Below are some things to keep in mind when you invest
in an index fund:
● You will likely never outperform the index
● You will likely match the performance of the index
itself
Let’s take the S&P 500 index, for instance:
● Index name Q S&P 500
● Number of Companies Tracked Q 500
● Types of Companies Tracked Q Largest US
companies
● How often is it updated? Q Quarterly
Here’s how your money would be invested in an S&P 500
index fund:

Why Invest in Index Funds?

:
 Why Invest in Index Funds?
Index fund investing, in my opinion, is:

● The safest
● The greatest
● The most stress-free
Way to invest in the stock market.

Hands down.
With index investing, you can win even if you don’t have:

● Investing experience
● Investing knowledge
● Time to monitor your investments
Even better?

What if I told you, that you could see higher returns than
the Wall Street hedge funds with this index investing
strategy…
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 If you set aside 15 to 30 minutes of your time, you can
start index investing and move one step closer to
becoming a millionaire.

How to Invest in Index Funds

Are you ready?

Here’s my guide on how to invest in index funds (step-

by-step)!

Step #1( Research Your Index Funds

Index investing is my favorite investment strategy.

And virtually anyone can do it for as little as $100 if you

start with M1 Finance, for example.

You’re not just investing in:

● 1 stock
● 1 company

You’re investing in:

● Many stocks
● Many companies

And that means:

● You’re diversified
● Your risk is spread out
● You could likely outperform hedge funds
:
 Let’s take my favorite index fund, the S&P 500 index
fund.

As the name suggests, the index tracks 500 of the best

and largest (blue chip) companies in the U.S.

So, if you invest in an S&P 500 index fund, you will own a
tiny percentage of ALL of the companies within the S&P
500 index.

Take a look at this visual representation of the

companies within the S&P 500.

Keep in mind that if you invested in the S&P 500 index

fund, you would now be the proud owner of a tiny
percentage of these companies.

When you are considering your index of choice, make

:
 When you are considering your index of choice, make
sure you consider which company types your index of
choice is investing in:
● Company size Q Decide the type of company you
prefer your index to invest in: Small, Medium and
Large
● Geographic location Q Decide where you prefer to
invest in: U.S., Global, or Combination
● Industry sector Q Decide which industry sector
you prefer to invest in: Health, Biotech, Finance and
Technology
● Asset type Q Decide which asset type you prefer
to invest in: Cash, U.S. stocks, Commodities, Foreign
bonds and International Stocks
● Market type Q Decide the market type you prefer
to invest in: Mid cap markets, Blue chip markets,
Emerging markets, Developed countries and
Developing countries

Remember, there are many other indices in addition to

the S&P 500 index fund.

Some of these indices include:

● S&P 500
● FTSE 100
● Russell 2000
● MSCI World
● Wilshire 5000
● Nasdaq composite index
● Dow Jones Industrial Average
● Bloomberg Barclays US Aggregate Bond Index
The skilled investor will consider investing in other
indices in addition to the S&P 500 to increase their
:
 indices in addition to the S&P 500 to increase their
diversification.

If you are looking to receive more tailored investment

advice, I’d suggest you check out Seeking Alpha, which
offers excellent investment tips from the pros.

Remember, if you’re invested in just the S&P 500, you are

only invested in:
● U.S. companies
● The largest, more stable companies
● Typically a higher technology sector exposure
Think back to our Index Fund Investing Pro and Con list –
remember how one of the cons mentioned less
diversification?
With the S&P 500, you are invested in the 500 largest
U.S. companies, which among other things, means:

● You don’t have international exposure

● You don’t have exposure in the small, up-and-
coming firms (meaning higher risk, but also higher
reward)
● Because the largest S&P 500 firms jApple,
Facebook, Google, Tesla, etc.) are tech firms, you
have a high concentration in the technology sector
The S&P 500 still is one of the best indices to track, and I
will continue to remain firmly invested in the S&P 500.

Step #2( Decide Which Index Fund to

Invest in
:
 Invest in
There are many different companies that offer S&P 500
index funds.

Some of these companies include:

● Fidelity
● Vanguard
● Charles Schwab
The S&P 500 index funds offered by these companies do
the same thing: They track the S&P 500.

However, the way each company structures their S&P

500 index fund is a little different.
I like to think about index fund investing like Vanilla ice
cream:
It’s supposed to be the same flavor – and it is – but
depending on the company you go to; you may taste
some minor differences.

That’s the same with index fund investing – although all

S&P 500 index funds are investing in the same 500
companies – the flavors are a little different.

Here are some things to keep in mind before you select

your index funds:
● Minimum Required Investment Q Some index
funds may only permit you to invest in them if you
have a minimum investment
● Investment Account Minimum Q Some accounts
may not allow you to invest until you have a certain
amount of cash
:
 amount of cash
● Expense Ratio Q Determines how much you’re
paying the index fund managers
● Tax Considerations Q Depends on the type of
investment vehicle you are using to do your index
fund investing

To determine expense ratios and other, more advanced

investment metrics, I use Seeking Alpha.
There’s no right or wrong answer when you’re wondering,
“which S&P 500 index fund should I invest in?”

Typically speaking, you’ll want to aim for the lowest-cost

index fund (the one with the lowest expense ratio).
The lower your expense ratio, the more money you’ll
have in your pocket.
And the higher the chances that you’ll become a
millionaire earlier.

Step #3( Decide Where to Buy Your

Index Fund
Now it’s time to decide where to buy your index fund.
This means you’re deciding which investment account
you will use to start your index investing journey.

Some of these platforms include:

● Vanguard
● M1 Finance
● Charles Schwab
:
 ● Charles Schwab
Each investment platform has pros and cons, so make
sure you review the full picture before you financially
commit.

When you are deciding where to buy your index funds,

consider some of the following:
● Simplicity Q Is it easy for you to invest in index
funds?
● Trading Fees Q Sometimes, you may be paying
more than $20 per trade to invest in index funds
● Fund Type Q Some investment platforms only offer
mutual index funds, while others only offer ETF index
funds
● Investment Vehicle Q Depending on your
investment vehicle you may be restricted by which
index funds you can invest in

Step #4( Determine Your Index Fund

Investment Type
Now it’s time to think about what type of index fund you
want to invest in – whether you want to invest in a mutual
fund or if you want to invest in an ETF.

I’m going to be very honest with you here:

As long as your expense ratios are low, it generally
doesn’t matter whether you invest in an index mutual
fund or in an index ETF fund.
Here’s when your index fund investment type does
:
 Here’s when your index fund investment type does
matter:
If you’re investing in:

● HSA
● 401k
● 403b
● Other employer-sponsored plans

Chances are, your investment options may be restricted

to whatever your employer allows you to invest in.
For example, my HSA account only allows me to invest in
mutual funds, not ETFs or individual stocks.

Mutual Fund vs ETF

To provide some clarity, check out the differences
between ETFs and mutual funds.
Mutual Fund Defined:
A mutual fund is a professionally managed group of
investments that can invest in stocks, bonds, etc.
When you buy into a mutual fund, you own a small
percentage of the investments within the mutual fund.

A mutual fund is traded (bought or sold) at the end of

each day, regardless of when you place your trade
during trading hours.
Now let’s take a look at what an ETF is.

ETF Defined:
:
 An exchange-traded fund (aka ETF) is a group of
investments, such as stocks, bonds, etc. that typically
track an index.
When you buy into an ETF, you own a small percentage
of the investments within the ETF.

An ETF is traded (bought or sold) just like a stock,

throughout the day at fluctuating prices.
And that’s the main difference between ETFs and Mutual
Funds:

ETFs trade like stocks, while mutual funds trade at the

end of each day, regardless of when you buy or sell your
mutual fund.

To provide you with a more visual-friendly depiction,

check out my mutual funds vs ETFs infographic below.
:
 It’s good to know the difference between mutual funds
and ETFs.
But it shouldn’t matter whether you invest in an S&P 500
mutual fund versus an S&P 500 ETF Q as long as the
expense ratios are low.

Pros and Cons of Investing in

Index Funds
As with anything in life, before you financially commit to
something, make sure you review the pros and cons first.

Index Fund Pros:

:
 Index Fund Pros:
● Very liquid
● Low cost fees
● Long term growth
● High diversification
Index Fund Cons:
● Less flexibility
● Unlikely to outperform the market
● May have limited gains – based on your index fund
choice
● Limited exposure to a variety of different
investment choices
For my personal situation, the pros far outweigh the
cons.

Index Investing Pro Tips

As you begin investing in index funds, there are a few
things you should keep in mind:
● Expense Ratio Q The lower the expense ratio, the
lower the cost to you
● Long Term Mindset Q It will take time and you’ll
likely see your money go up and down with the stock
market fluctuations
● Dollar Cost Averaging Q Dollar Cost Averaging (aka
DCAp is a surefire way to grow your investments over
period investments, over time
● Monitor the Fund’s Performance Q Your index fund
should ultimately be mirroring the performance of
your chosen index
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 your chosen index
● Roth IRA Q Since Roth IRAs are tax-advantaged,
they may be a great investment vehicle if you want
to take out money a few decades from now
● Budgeting Q Understand your budget to determine
whether you could be investing more toward your
index funds
Becoming an index fund millionaire is very possible if
you:

● Consistently invest
● Don’t withdraw your money
● Maintain a long term mindset
Investing with index funds will not be an overnight
success story.
It will take time and patience, but that will pay off in the
end.

Closing Thoughts
Do you want to outperform Wall Street managers while
only paying minimal fees (small expense ratios)?
Then index fund investing might be the right choice for
you.
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 Although fund managers may outperform passively
managed index funds in the short term – we are in it for
the long run… and for low fees.
Also one of the wealthiest people in the world Q Warren
Buffet – advocates for index fund investing.
So what are you waiting for?
Personally speaking, index investing is something that I
do every single day – and have seen multi-millionaire
clients do as well.
Start today, because your bank accounts will thank me
tomorrow.
Signing off now.
Your friend,

q Fiona

This guide may contain affiliate links.

PSJ If you enjoyed this guide or have any questions /

comments, shoot me a message on Twitter and let me
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 comments, shoot me a message on Twitter and let me
know

PPSJ If you want to:

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