Index Fund Investing: How To Become A Millionaire

Are you ready to take advantage of index fund investing?

Inside this blog, I'm going to show you how to become a millionaire using the power of compounding.

Additionally, I'm going to share with you what index funds are and the ETF and index funds that I invest in.

Compounding is the process of generating earnings on an asset's reinvested earnings. Einstein is famous for saying that “Compound interest is the eighth wonder of the world.”

Those that understand compounding, earn it. Those that don't, pay it.

Are you ready to learn about the compounding power of index funds? If so, you'll want to read this…

Watch the video below:

(Click here to watch on YouTube)

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Index fund investing is a smart way to invest your money.

I started investing when I was 18 years old. I became a millionaire when I was 27 years old through my online business. However, I didn't want to solely rely on my business to create financial freedom. That was too risky for me.

This is why I chose to become a long-term investor. If I failed in my business ventures or something happened, I wanted to still be financially secure. That is what investing offers you. The earlier that you start investing, the better.

I want to help you get started investing in an index fund even if you've never invested in anything in your entire life. One of the most basic investment principles is to pay yourself first. This means putting money aside as soon as you get paid, before spending money on ANYTHING else.

Watch the video above where I share my computer screen and show you the ETFs and index funds that I invest in!

Before we dive into index fund investing, I want to provide you with a few scenarios that will help shed light on the power of compounding.

Scenario #1

Let's pretend that you invest $100 per week ($400 per month) and that the money that you invest is compounded at a 9-10% annual return. If you continued to invest $100, month after month, this is how your money would compound over time:

5 years – $31,121
10 years – $79,003
15 years – $152,677
20 years – $266,033
30 years – $708,799
35 years – net-worth millionaire
40 years – $1,756,989

THIS reflects the power of compounding.

Scenario #2

One person is 19 years old when they start investing. They contribute $2,000 into their investment account every single year until they turn 27 years old, at which time they stop investing altogether. On the other hand, another person starts investing at 27 years old. They contribute $2,000 to their investment account every year until they are 65 years old.

Who do you think ends up with more money in their bank account? The former person will end up making over 1 million dollars at 65 years of age, whereas the latter person will end up with $805,000. That's a $200,000 difference.

Why did this happen? The former person started investing earlier. Time in the stock market is everything. The earlier you start, the sooner that your money will amass to large sums, thereby helping you achieve financial freedom.

What is an index fund?

An index fund is an exchange-traded fund (ETF) that is comprised of a group of companies that you own. However, you're only buying one fund on the market. That one fund owns the top 500 companies in the U.S., which is known as the S&P 500.

Investing in different sectors is a smart way of mitigating your risk, otherwise known as diversification. By investing in one index fund you're mitigating your risk because you're not investing in one specific company. It's safer to bet on the U.S. economy versus one individual company.

This is why I think index funds are so powerful and why I believe that they are one of the best vehicles to start investing in. Another great thing about investing in an index fund is that it's passive. It's not like investing in a mutual fund that is actively managed.

In the investment world, most fund managers are trying to pick stocks and time the market. However, over a long period, only 4% of stock pickers beat the S&p 500. Conversely, research shows that S&P 500 has delivered average annual returns of almost 10% going back 90-plus years.

I follow the investment advice of Warren Buffett.

He is one of the greatest investors of all time, and a proponent of index fund investing. He says that “a low-cost index fund is the most sensible equity investment for the great majority of investors. By periodically investing in an index fund, the “know-nothing” investor can outperform most investment professionals.”

If Warren Buffett recommends that you invest in an index fund, I highly suggest you follow suit! Investing in index funds doesn't require that you have any skills.

Nor does it require that you check-in on the market daily, or keep up-to-date on the latest investment news. Thus, investing in a low-cost index fund is a set-it-and-forget-it approach.

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MY FAVORITE INDEX FUNDS

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Are you ready to become a millionaire with index fund investing?

Like I said above, this is a great vehicle for creating financial freedom in your lifetime. That being said, whatever I share with you, please don't take it as gospel, so to speak. When it comes to investing, you must do your due diligence.

However, I think you'll find that there is a lot of current research that supports the value of index funds. They are an easy and diversified way to start investing in the stock market.

Don't sit on the sidelines and wait another year to take advantage of compounding. There is no better time than today to start investing your money and protecting your financial future.