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Scholars Corner: WHY INDEX FUNDS ARE THE EASIEST WAY TO INVEST IN STOCKS · Earn Your Leisure

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  Speaker 2: I'll give a little bit more background, some research.
• 1:00
  Speaker 3: So Jeremy is the head of Personal Finance Club Big
• 1:04
  Speaker 3: Index Investor, and you retired at thirty six years old.
• 1:08
  Speaker 4: That's true.
• 1:09
  Speaker 5: I mean the word retired is a little bit corny
• 1:11
  Speaker 5: because it just sounds lazy or something. But I don't
• 1:13
  Speaker 5: have a job anymore. I don't need a job. I
• 1:17
  Speaker 5: direct my time as I see fit. And yeah, most
• 1:20
  Speaker 5: of that wealth came from starting and growing company, and
• 1:22
  Speaker 5: I sold it when I was thirty four, and then
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  Speaker 5: I've been an index fund investor before and after. I
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  Speaker 5: just invest long term, buy and hold, keep it simple,
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  Speaker 5: and that's how I think I'm going to maximize my
• 1:34
  Speaker 5: own wealth going forward.
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  Speaker 2: All right, So yeah, we got a couple of questions
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  Speaker 2: first and Foremo, thank you for joining us.
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  Speaker 4: Hey, welcome, We appreciate it.
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  Speaker 2: So index investing.
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  Speaker 3: We talked about index investing a little bit, but I
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  Speaker 3: know you're real big on it, So Ian thought that
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  Speaker 3: this would be a perfect opportunity to really go deep dove.
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  Speaker 3: Why do you prefer index investing over individual stocks?
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  Speaker 5: So you know, I've been listening to the show today
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  Speaker 5: and like you guys are talking a lot. When you're
• 1:57
  Speaker 5: talked about Apple, you talked about you know, gosh and
• 2:00
  Speaker 5: the oil. And here's the thing is, like it's very,
• 2:03
  Speaker 5: very hard to beat the market. And so if you
• 2:06
  Speaker 5: buy an individual stock and it goes up eight percent
• 2:10
  Speaker 5: this year, but the whole stock market went up ten percent,
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  Speaker 5: that's not really a gain, it's really a two percent
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  Speaker 5: loss to the market. And the sum total of all
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  Speaker 5: the stocks in the market average out to the market.
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  Speaker 5: So you know, if one stock is up twelve percent
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  Speaker 5: and one's up eight percent, that averages it out. That
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  Speaker 5: averages out to ten percent. And so when you're trying
• 2:30
  Speaker 5: to pick stocks, you're essentially saying, I'm trying to beat
• 2:34
  Speaker 5: the market. Because if you're not trying to beat the market,
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  Speaker 5: then you shouldn't be picking individual stocks. You should just
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  Speaker 5: buy the index. And then if you're contending that you
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  Speaker 5: can beat the market. What it's very very challenging because
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  Speaker 5: despite being like and I think you guys are extremely
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  Speaker 5: well researched, you've done your homework, you're very well read,
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  Speaker 5: but you're not competing against the next investor. You're competing
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  Speaker 5: against the sum total of human knowledge. Because the sum
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  Speaker 5: total of human knowledge is constantly, instantly being baked into
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  Speaker 5: every single price every single stock, because there's millions or
• 3:02
  Speaker 5: billions of traders and only a few thousand stocks that
• 3:06
  Speaker 5: can be traded on so every single, tiny little penny
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  Speaker 5: change is being priced, you know, is being priced based
• 3:12
  Speaker 5: on all the different traders, all the different algorithms, trading
• 3:15
  Speaker 5: all different mutual funds, all different hedge funds, and so
• 3:18
  Speaker 5: to beat that game is extremely difficult. Plus when you
• 3:22
  Speaker 5: trade includes, there's fees, or there's you know, buy sell gaps,
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  Speaker 5: there's tax implications if you're selling an index fund. Basically
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  Speaker 5: says Okay, I'm going to just admit I am not
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  Speaker 5: smarter than the sum total of human knowledge. And instead
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  Speaker 5: of trying to pick and choose a few stocks, I
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  Speaker 5: want to buy every single stock all at once. And
• 3:40
  Speaker 5: so in the US there's out four thousand publicly trade stocks.
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  Speaker 5: You can just buy all four thousand, all at once
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  Speaker 5: for virtually no cost. There's like tiny, tiny fee associatedies.
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  Speaker 5: When you do that, you guarantee yourself your fair share
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  Speaker 5: of all market growth. So you own Apple, you own Microsoft,
• 3:58
  Speaker 5: you own Facebook, you own that Fix, your own next
• 4:00
  Speaker 5: on Mobile, your own General Electric, Tesla down the list,
• 4:02
  Speaker 5: you own everything. And when all those companies grow and
• 4:06
  Speaker 5: innovate and hire and profit and increase greade revenues, all
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  Speaker 5: that is pumped right back into index fund, right back
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  Speaker 5: into your account, without having to guess which is better.
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  Speaker 5: So that's why I let the next funds because I'm
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  Speaker 5: not I don't want to get taken advantage of by
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  Speaker 5: algorithmic traders, or by mutual fund managers, or by hedge
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  Speaker 5: fund managers. I want to guarantee myself my fair share
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  Speaker 5: of growth of market growth, and over long periods of time,
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  Speaker 5: the market goes up about ten percent per year. And
• 4:32
  Speaker 5: if you're just putting away five hundred bucks a month
• 4:35
  Speaker 5: at ten percent per year over thirty years or sorry,
• 4:38
  Speaker 5: over forty years, is about three million dollars you can become.
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  Speaker 5: You can become fabulously wealthy with just slow and study,
• 4:46
  Speaker 5: tried and true investing in an index fund.
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  Speaker 4: So when did you start investing?
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  Speaker 6: I know you said, you know, you stopped working at
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  Speaker 6: thirty six for someone at thirty six.
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  Speaker 2: No, he sold his company company? What company did you have?
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  Speaker 4: You sold?
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  Speaker 5: The company was called rent Links online rental housing listings.
• 5:02
  Speaker 5: So if you want to list an apartment for rent,
• 5:05
  Speaker 5: you could post it to zillo or apartments dot com
• 5:07
  Speaker 5: or rentals dot com or Craigslist. I created a site
• 5:10
  Speaker 5: where you can post it once and automatically feeds to
• 5:13
  Speaker 5: fifty different sites, and then you can track all your
• 5:15
  Speaker 5: incoming leads from rentors. So it's basically a tool for landlords.
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  Speaker 2: Would you sell it to.
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  Speaker 5: I sold it to a company called at Folio, who
• 5:22
  Speaker 5: is publicly traded. I bought a bunch of their stock
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  Speaker 5: at twelve and I sold most of it at twenty
• 5:28
  Speaker 5: four and now it's at one hundred and eighty.
• 5:30
  Speaker 2: Oops.
• 5:35
  Speaker 5: I still own some and actually like the condo you
• 5:38
  Speaker 5: see behind me was paid for with a former Atfolio stocks.
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  Speaker 5: So it did it did? It did fine for me?
• 5:43
  Speaker 5: But yeah, so I sold that folio.
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  Speaker 4: Yeah.
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  Speaker 7: My personal investment at Philosophy that I like is to
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  Speaker 7: have half indexes and then half tech stocks. But why
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  Speaker 7: do you think people hate index and even though it's
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  Speaker 7: the easiest thing to invest in a long.
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  Speaker 5: Term I like that strategy. By the way, I actually
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  Speaker 5: go for the ninety ten strategy, which is ninety percent
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  Speaker 5: index funds, ten percent stocks. And I like your strategy too,
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  Speaker 5: because either way it gives you a chance to see
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  Speaker 5: both sides and if you're as good.
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• 9:01
  Speaker 1: you need.
• 9:02
  Speaker 5: But at picking stocks as you hope you are, not you,
• 9:05
  Speaker 5: I just mean any person you should be able to
• 9:07
  Speaker 5: look at your two portfolios and see that you over
• 9:10
  Speaker 5: long periods of time, talking like five plus years, if
• 9:13
  Speaker 5: your stocks are really outperforming your index, is that cool,
• 9:16
  Speaker 5: then you can move more towards stocks. But if your
• 9:18
  Speaker 5: stocks crash, you want to actually not ruin your retirement
• 9:22
  Speaker 5: by you know, not having like your fair share of
• 9:24
  Speaker 5: market growth. So I think the reason people don't like
• 9:27
  Speaker 5: index funds is because it sounds like it's average. They're like,
• 9:32
  Speaker 5: I don't want average. I want fabulous growth. And it's
• 9:34
  Speaker 5: not get rich quick. It's not exciting, it's not sexy.
• 9:38
  Speaker 5: It's like very boring, like you got you were saying earlier,
• 9:41
  Speaker 5: like look at the market every day. I was like,
• 9:42
  Speaker 5: you know, I mean I kind of do like at
• 9:44
  Speaker 5: the market just because I'm interested in it. But like,
• 9:46
  Speaker 5: but I don't make trades like I might. I might
• 9:49
  Speaker 5: go years without making trades other than just constant reinvesting
• 9:52
  Speaker 5: because I know over time it's going to average out,
• 9:54
  Speaker 5: and so I think it's it sounds like it's average.
• 9:57
  Speaker 5: In my opinion, it's not average. There's a study that
• 9:59
  Speaker 5: shows that over the last you know, one hundred years,
• 10:02
  Speaker 5: the market goes up about ten percent per year, but
• 10:04
  Speaker 5: the average investor gets about four percent because of making
• 10:09
  Speaker 5: all these mistakes, Like I mean the market. You know,
• 10:12
  Speaker 5: I just talked to a friend yesterday who who's a
• 10:14
  Speaker 5: who's a pretty wealthy guy. But he in the middle
• 10:16
  Speaker 5: of the coronavirus crash, he was sure that the market
• 10:19
  Speaker 5: was going to get worse and worse, and so he
• 10:21
  Speaker 5: he bought an inverse ETF so he bet against the market.
• 10:24
  Speaker 5: He bet the market was going to go down more.
• 10:26
  Speaker 5: And then of course, like the last few weeks, the
• 10:28
  Speaker 5: market has jumped out thirty percent, so he got he
• 10:31
  Speaker 5: got super crush, right, and so like.
• 10:35
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  Speaker 2: So the term I want to ask.
• 10:55
  Speaker 3: You all, and this is the one that we talking
• 10:57
  Speaker 3: about to high like this because we're not a lot
• 10:59
  Speaker 3: of a lot of plans forms online are biased that
• 11:02
  Speaker 3: they only steer you into one direction, and you could
• 11:05
  Speaker 3: really steer somebody into any direction that you want them
• 11:07
  Speaker 3: to go. There's really no right or wrong in investing.
• 11:09
  Speaker 3: So we talk about stocks a lot, but everybody. We
• 11:12
  Speaker 3: realize that everybody is not going to be an individual
• 11:14
  Speaker 3: stock participant, So we want to talk about index funds, ETFs,
• 11:20
  Speaker 3: mutual funds, all of those different things, and they all
• 11:22
  Speaker 3: have advantages and disadvantages. So with the with the index,
• 11:25
  Speaker 3: what is some what is some top indexes that you
• 11:28
  Speaker 3: personally are invested in or you personally recommend? I mean,
• 11:31
  Speaker 3: we know like the Dow Jones five hundred, the S
• 11:32
  Speaker 3: and B I mean the S and P five hundred,
• 11:35
  Speaker 3: now Jones.
• 11:37
  Speaker 4: But what I thought I was going to say.
• 11:41
  Speaker 2: So what are some what are some top indexes that
• 11:43
  Speaker 2: you recommend?
• 11:44
  Speaker 5: Well, first, you're importing about there's lots of different ways
• 11:46
  Speaker 5: to do it. I always talk about my two rules.
• 11:49
  Speaker 5: Rule number one is live below your means, spend less
• 11:53
  Speaker 5: than you make. And rule number two is invest early
• 11:56
  Speaker 5: and often. And so if it's if it's real estate,
• 11:59
  Speaker 5: if it's individual stocks. You know, like you said, there's
• 12:02
  Speaker 5: a lot of ways to do investing. But if you
• 12:03
  Speaker 5: spend every dollar you make, no matter what, no matter
• 12:06
  Speaker 5: how clever of an investor you are, it doesn't matter
• 12:08
  Speaker 5: because you're going to be broke. And so, you know,
• 12:11
  Speaker 5: I think investing can be confusing to a lot of people.
• 12:14
  Speaker 5: But always remember if you spend less than you make
• 12:17
  Speaker 5: and you invest that difference, you know, you just want
• 12:19
  Speaker 5: to increase that gap. It doesn't matter if you're perfect
• 12:22
  Speaker 5: and investing. That's the important part is actually doing it.
• 12:25
  Speaker 5: And don't let the fear of the perfect stop you
• 12:28
  Speaker 5: from even getting started, right because it's like, oh, it's
• 12:30
  Speaker 5: so it's so confusing, I'm just going to spend every
• 12:33
  Speaker 5: dollar I make. You know, that's the wrong reaction. Just
• 12:35
  Speaker 5: just get started. So, and to answer your question about
• 12:38
  Speaker 5: the best indexes, the thing about indexes is like there's
• 12:41
  Speaker 5: not really better or worse. I just did a little
• 12:44
  Speaker 5: study on the top twelve US stock market indexes over
• 12:47
  Speaker 5: the last decade, and they're all basically identical because they
• 12:50
  Speaker 5: all do the same thing. They all follow the market.
• 12:52
  Speaker 5: And so there's a book that's on the three fund portfolio,
• 12:56
  Speaker 5: which basically says, there's only three things you need to
• 12:59
  Speaker 5: buy US stock market index fund, which is to buy
• 13:02
  Speaker 5: every single US stock, an international or non US stock
• 13:07
  Speaker 5: market index fund, which is to buy you know, Europe, China, Korea,
• 13:13
  Speaker 5: you know, all the emerging markets. And then the third
• 13:15
  Speaker 5: would be a bond fund. And so those three kind
• 13:17
  Speaker 5: of give you the ultimate diversity every US stock, every
• 13:20
  Speaker 5: non US stock, and then the income producing bonds. And
• 13:23
  Speaker 5: then you just have to choose your asset allocation, which
• 13:25
  Speaker 5: is what percent each and most people usually choose something
• 13:28
  Speaker 5: like fifty five percent US, forty five percent international, and
• 13:33
  Speaker 5: ten percent bonds. That would be an aggressive portfolio for
• 13:36
  Speaker 5: like a young person in the wealth accumulation phase.
• 13:40
  Speaker 6: That's a valuable that's a valuable lesson because a lot
• 13:42
  Speaker 6: of times we're looking at it like you, listen, we're
• 13:44
  Speaker 6: trying to get rich quick, and X funds ain't to
• 13:46
  Speaker 6: pop the weight right because it's slow and steady.
• 13:48
  Speaker 4: But at the end of the day, the market is
• 13:50
  Speaker 4: always going to grow. We know that.
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