This Is How To Become A Millionaire: Index Fund Investing for Beginners

0:00Hi guys, it's Mark. So did you know if you saved $200 per month at an 8% and your return, and in 45 years you would have over, wait for it, $1 million. To be honest, when someone first explained this was possible by investing in index funds, I hardly understood the word they were saying. It was like they were speaking a different language. Today I thought it was about time that I made the video that I was shard seen when I was younger and explained everything, step by step, and because I like people that actually practice what they preach, I'm going to be investing $10,000 of my own money during this video, so you can see exactly how it's done. Just a quick disclaimer though, I'm not a financial advisor, I'm a businessman, and this is just some of the real life strategies that have worked for me. Personally, I always thought of index funds as my backup plan. If my businesses hadn't been successful, then I would have become a millionaire anyway through these investments. Just remember if you like the video then smash the like button as it really helps push this video out to more people,

1:01and also consider subscribing if you want to grow your wealth. Part 1, uncovering the lies. So let's cut to the chase. You've been put up major disadvantage. People have been telling you lies about investing all of your life. For instance, at school, when I was growing up, I remember asking my teachers about investing, and they always said it's just for rich people, is they going to afford to hire professionals to do it for them? But the longest time I believed investing wasn't for me because I wasn't a pro, and I didn't have much money, and I thought I wouldn't stand a chance. Then we got friends. While the mind said I'd have to look at all the financial newspapers, learn how to read the charts, and according to him, it just wasn't worth my time. And on top of this, every time I mention investing to my family, they seem so scared because they thought it's the most risky thing in the world and not for normal people. My dad even said, if I started investing, I'd lose all my money. Can you believe that? These lies are exactly what the experts want you to believe, as they know that index funding investing is extremely easy to do. You don't need much money to start, the risk of pretty low, and on average, it will make you more money in the long term.

2:04The dark truth is that the average actively managed fund returns 2% less a year than the market in general. This means that professionals on average are doing worse than index funds, and even if they end up losing you money, they still charge you fees, no matter what. Now, according to my favorite film, The Matrix, you have now taken the red pill and you've woken up to the truth. It's now time to move on to part 2, understanding the game. I know when I first started investing, I felt like I was going to make so many mistakes, but once you understand their language, it all becomes so much easier, and that's what we're going to be talking about in this part. So I've been banging on about index funds in many of my videos, so I think it's about time I explained what they are, and why they're so cool. I'm a big football fan, and if you have ever followed any sports, you'll be familiar with a league table like this. The better your team performs, the higher up they'll be on the list, but on the other hand, if they do really badly, they might be removed from the league entirely. This is almost exactly the same as an index. All you have to do is switch out the teams

3:06for companies. Let's take the S&P 500 for example. This is a list of the 500 best performing public companies in the USA. The big dogs being Amazon, Google, Apple and more recently Tesla, and just like a league table, if a company doesn't perform well, they're at risk of being removed from the list. The idea of an index fund is to be a little bit sneaky, as it allows you to invest in every single company on the list, with just one click. It's a bit like a friend of mine who picks a different football team each year. He just wants to pick the winner every time, so investing in index funds means that even if a few companies do terribly, then it's balanced out by the companies that are doing extremely well. The average return on the S&P 500 over the last 10 years has been 13.6%. Now that is higher than usual, but get this. No one has ever lost any money if they've bought and held an S&P 500 index fund for more than 20 years. So if this is so foolproof, then why do people still buy individual stocks? Well personally, I like to do this just for a bit of fun. I also think

4:11that some companies are currently working on awesome technology for the future, but aren't making a lot of money at the moment, so they won't make the cut into the popular index funds. So now, again, I like to invest some extra money into these up and coming companies, so I don't miss out. And that reminds me, we bought currently given away four free individual stocks. If you want to pick them up, I'll leave the link in the description. And for everyone that's outside of the USA or China, I'll leave a link where you can claim a free stock with trade in 2-1-2. Hey, that's pretty good. You'll often hear people throwing around the terms Roth IRA in the USA, stocks and shares iso in the UK, TFSA in Canada and supers in Australia. But what does it all mean? Well, these are types of accounts that allow you to own profits on your investments, and you don't have to pay any taxes on them, but they generally have limits because they're just so powerful. These are kind of like Captain America's shield. So let me explain. If Captain America just at home with his shield, then he won't ever get anything done. But when he takes that shield into battle, he has an

5:13advantage. So these accounts are like your shield. Make sure to use them when you're investing. A way you can do this is by using the money inside your shielded account to invest into index funds. And all the profits are yours because the government won't take a cup. One of my biggest questions when I first started was should I invest all my money at the same time or do it gradually? Now, this is something lots of investors argue about. So I'm going to give you my view on things. Remember later, I'm going to be investing this $10,000 in full. So that kind of gives you an idea of what I believe. Investing all your money as a lump sum is certainly more risky. However, if I'm investing in something I know will increase over time, like an S&P 500 index fund, then there's no point waiting. The longer you wait, the worse off on average you'll be. However, if you don't have the cash, I wouldn't wait to save up the money. I would just invest what I could every month. Sometimes you're going to buy when the stock's high. Other times you're going to buy when the stock's low. But overall, this is going to balance out. And this is known as dollar cost averaging. When you log on to an investing website or app, you'll see that there is something called

6:16ETFs, which are very similar to index funds. And a lot of people get the confused. Both allow you to invest into a basket of stocks. However, the easy way to remember the difference is just a think of what ETF stands for. Exchange traded fund. If we break that down simply, it just means that it can be traded on the stock market throughout the day, whereas an index fund can only be bought and sold for a price that is set at the end of each trading day. But let's cut to the chase. You probably want to know which one's better. On average, if you're starting with little money, then ETFs may be a better option as they have lower minimum investment thresholds. And many brokers don't charge a trading commission. Now, if you're still watching this and you're younger than 18, then I am really impressed that you've been listening to a boomer like me for so long. But seriously, not many people learn this at such young ages. They don't teach it at school. A way you can start investing under 18 is to open up a custodial account in the USA or a junior stocks and shares ISO in the UK. Set up these accounts you just need to ask your parents. The real secret ingredient to this

7:17millionaire formula is time. And when you're younger, you have so much of it. That's because every year as you keep adding to your investments, the interest starts to compound and grow at a rapid pace. It's a snowball effect once you reach a certain tipping point. The interest you're making is much more than the amount you're investing on a monthly basis. It's a bit like when you see someone take ages to get to 100,000 subscribers on YouTube. And then, within a few months, they manage to hit the big million. The sooner you get started, the better as time will be on your side. Now, I want to clear something up. When people talk about index funds, you will hear S&P 500 again and again. People just love it. As I mentioned before, this is a top 500 public companies in the USA. But the cool thing is, you don't actually have to be in the USA to invest in this. I'm in the UK, and it's one of my favourite investments. I just love to think that I own a small part of all the biggest companies in the USA. Part three, mastering the strategy. So, lots of people have to teach you what to do, but they won't actually say how to do it. So, I'm going to walk you through

8:21everything right now while I invest my own $10,000. The first thing to really do is to work out your goals. Let's say you want to become a millionaire. That was one of my goals. I just had to work out how much I would actually need to invest per month to achieve this. I love using these compound interest calculators. You can find them online easily yourself if you want to go at this. So, if you're able to invest $250 per month with an 8% annual return over 42 years, you'll have over a million dollars in your account. Now, if you're able to invest that for another 10 years, you'll have over 2 million in your account. Of course, if you want to invest even more, then you're just going to speed up the whole process. The next thing we need to do is pick the brokerage website we're using to set up our account and invest. The ones that I love are Charles Swap, Fidelity, and Vanguard. I call these the Big Three. The founder of Vanguard, John Bogle, is often referred to as the father of index fund investing. And if you think I'm a boomer, he was even older than me. Here's Vanguard Group gave birth to index funds. So they're the oldest and most trusted. Let's jump onto their

9:25website to see what they have to offer. So, to get onto their full list of funds, just go up to invest in and click on Vanguard Mutual Funds. At this point, I'm going to have to ask you to strap in and brace yourself because you haven't seen this page before. It can look extremely overwhelming. But in a minute, you'll be able to impress all your friends when you know exactly how to read it. So what I mean, there are just so many options. The main things to focus on are the expense ratio, which is how much they're going to charge you per year. You obviously want to keep these as low as possible and luckily with Vanguard fees, these are very low anyway. The other thing to look at is the average returns. And they break these down nicely on the right hand side of the screen. But of course, it's always good to remember that past performance doesn't always mean future returns. My wife's a bit like Vanguard. She likes everything in order and nothing out of place. So they have arranged all of their funds into different categories so everything is easy to find. Category one is bonds. These are a type of contract that companies and governments sell when they need extra money. If you invest in these, they promise to pay you back in the future.

10:27These are often seen as pretty low risk but also pretty low returns. Therefore, the older you are, the more bonds you should have in your portfolio. Number two is balance funds. The idea of these is to pick the agent which you wish to retire and they'll do all the rest of work for you and find the right mix of index funds. As you can see, these go up in five year intervals and you can pick whichever suits your plan's best. This could be a good option if you want to invest without thinking about it too much. But personally, I always prefer manually investing. It's a bit like driving an automatic car that does all the work for you. It just isn't as much fun as a stick ship. Number three is company location and size, known as small, medium and large cap. Here you can find V5X which tracks our old friend, the S&P 500. This little S means it's one of Vanguard selected funds which they recommend. If you click on it, you're able to see exactly what companies you would be investing in and also the risk level. VT-Sax is another good one which is a total stop market index fund which has over 3,586 different stocks. This allows you to invest in the entire USA

11:32stop market in one click. There is a minimum investment of $3,000 again. But as before, there's also an ETF version with no minimum called VTI. Then you have international stocks. Quite a cool one is emerging markets which investing companies based in China, Taiwan, India and many more. But as you can see, this is a five on the risk scale. So I wouldn't personally invest a lot of money into this fund because look at me, I'm a bit old to be taking too many risks and I need to sleep at night. Number four, the last category is sector base. So if you have a particular interest in energy, health care or real estate, you can invest into these sectors and there are also a lot more options for sector investing in the ETFs. Now now we've broken down what's on offer. Hopefully it all looks a bit more understandable. Now for the moment you've all been waiting for. It's time to invest my $10,000. I can split this between lots of different funds but personally I like to invest the majority of my money into American companies. I would say probably about 70% American, 20% in other countries, including the UK and 10% in some bonds. I like to keep the bonds quite

12:38low as I don't mind this little extra bit of risk because I'm only 53 and I have a bit of time before I've got to rebalance my portfolio to secure my investments. But that's a personal choice depending on your risk tolerance. The funds that are available are different in every country but the indexes they track are very similar. So you may need to invest in a different fund to me but obviously you can still use my percentages as a guide. So I'm going to use the UK Vanguard site to invest 5K straight into this ETF that tracks the S&P 500. So here we go. All done. $2,000 is going into an index fund that tracks the total American stock market. So again we go on the screen, click. So far that 70% invested in the biggest economy in the world which of course is the USA. Now I like to balance this out by investing in a different economy. As I'll have back in my own country I'm going to be putting 2K into the FTSE 100 index fund. So looking good. All done. Great.

13:39Now I've invested 90% of my 10K and I'd like a bit of security. Let's just put the remaining 1K into a global bonds index fund. And let's just do that. So just like that I've invested in the USA companies like Apple, Amazon, Tesla and Google. I own a small piece of the biggest companies in the UK like HSBC, BP and Unilever and I have some bonds to balance out my portfolio. It really is as easy as that. So I'm going to leave the next video up here but don't click on it just yet. Remember to subscribe to the channel if you want to grow your wealth, ring that notification bell and smash that like button. Okay, I'll see you on the other side.