INDEX FUNDS FOR BEGINNERS 📈 Buy Index Funds/Exchange Traded Funds (ETF) #Best Education Page #Online Earning

so today we're going to be talking about

index funds and I have to say I'm a

little disappointed in myself because I

haven't made this video yet I did do a

video a couple of months ago talking

about some Vanguard index funds and I

covered some of this stuff but I have

yet to do a video that covers everything

you really need to know about index

funds so that is what today's video is

going to be so first of all who do I

recommend index funds to I think index

funds should be part of anyone's

portfolio unless you're someone who is

super ambitious and you want to do all

of your investing yourself and pick

individual stocks so me personally I

have most of my money invested in

individual stocks and I have a small

amount invested in index funds so I

think that's a good idea for some people

who want to have some active management

of their account you know they want to

study stocks and they want to be a more

active investor but for someone who's

looking to be a passive investor someone

who doesn't want to worry about looking

at stocks and reading earnings reports

and things like that then index funds

are the best option out there so first

of all what is an index fund well an

index fund is a mutual fund or ETF which

is an exchange-traded fund that is

tracking a specific underlying market

very simple now an exchange-traded fund

is just a basically it's like a mutual

fund that you're able to buy shares of

on a secondary market through the stock

exchange so that is one of the things I

like about index funds is that you can

buy them as you do a stock so you don't

have to necessarily go out there and

open a separate account to open up a

indexed mutual fund if you don't want to

rather than picking stocks and trying to

beat the market many people invest in

the broad market indexes themselves

because the truth is most investors out

there fail to beat the return of the

market it's a very difficult thing to do

so if you're someone who doesn't want to

try to do that if you're someone who

doesn't want to actively pick stocks

then you should be looking at index

funds unfortunately most people out

there get roped into actively managed

mutual funds and I'm hoping to shed some

light on that and maybe give you guys at

least the realization that you might be

paying for something that is not doing

you any good

so most actively managed mutual funds

fail to be the market return how many do

you say

well here's the answer right here so in

a 10-year period ending in 2015

82% 82% of large-cap funds

failed to be the S&P 500 now remember

with an actively managed mutual fund

you're paying a much higher expense

ratio than you would pay for a index

fund so you're paying money to pay these

active fund managers to make investing

decisions on your behalf

while 82 percent of them failed to beat

the market return so the big question

for you guys is the big thing I want you

to think of is what are you paying for

exactly what are you paying these active

fund managers for so if you're someone

who has a mutual fund and that kind of

scared you and made you realize oh wow I

may be in that 82% I want you to go look

into your mutual fund figure out what

your expense ratio is and see if those

fund managers are adding any value by

actively managing your money and if

they're failing to beat the S&P 500

market return and you're paying them a

higher expense ratio than you would be

paying for a index fund you should

seriously reconsider whether or not you

should have that mutual fund now if they

are in the 18% that are beating the S&P

500 then obviously they are adding some

form of value by actively managing and

researching stocks and allocating the

fund in that way so what are the perks

of an index fund well hopefully you're

already seeing the reason why people

invest in these but here are the four

main perks and reasons why you yourself

probably should look at index funds

number one is the broad market exposure

as we say you want to be as diversify as

possible and the more diverse fied you

are the better so having broad exposure

to markets is the best thing you can do

as far as diversity and lowering your

risk so number one is the broad market

exposure number two is that low expense

ratio so you're not paying for active

fund management you're not paying money

managers there so as a result the

expense ratio is much lower so you want

to look at your expense ratio of the

mutual fund you have and compare it to a

comparable index fund and see how much

you could be saving I know a couple

percentage points doesn't sound like a

lot but take that percentage and put it

into a compound interest calculator and

that will likely change your mind as far

as how much money you are throwing away

by having a mutual

fund that's actively managed especially

if they're not beating the market return

number three reason that index funds are

great is because of a low turnover and

as a result there's lower commission

costs so if you're in a mutual fund

that's constantly changing allocations

and selling and buying stocks you're

spending a lot of money on transaction

and Commission costs and the other thing

as well is the fact that you're going to

have more tax drag that way because you

may be paying short-term capital gains

tax on those if they're not being held

for more than one year and you also have

to consider the fact that anytime you're

selling you're getting a capital gain

from that so you're paying taxes as you

go so you do have a higher tax drag a

lot of the time with actively managed

mutual funds number four is the fact

that this is a passive income model

because when you put your money into an

index fund you may continue to allocate

money into that fund as you go but other

than that everything happens behind the

scenes you know your dividends are

reinvested and as the index changes so

maybe the S&P 500 changes the companies

listed on the S&P 500 index the actual

index fund will change that around

behind the scenes that's really the only

time you're going to see any kind of

turnover with an index fund is when the

underlying index itself changes so index

funds replicate the performance of an

underlying index therefore there's no

research or analysis research and

analysis is what you're paying these

active mutual fund managers for because

they're believing and they're hoping

that with their research and analysis

they're able to beat the average market

return and as we said before 82% are

failing to do so here are some popular

indexes that people may be looking at as

far as looking for an index fund the

biggest one I think is the S&P 500 this

is the 500 meeting companies on the US

stock market then we have the Russell

2000 this is another one people like to

invest in looking to get small cap or

grilled stock exposure this is a bunch

of small cap companies then there's the

will Shire 5,000 which gives you

exposure to the total US stock market so

as far as diversity goes that the best

thing you can do as far as US stocks but

you also want to be diversified

internationally so make sure you're

looking at international stock market

funds as well then there's the DJIA the

Dow Jones Industrial Average

also known at the Dowell 30 this is 30

large cap companies that many consider

to be a list of blue chip companies so

if you're looking to invest in blue chip

stocks and you don't want to pick

individual stocks investing in a fund

tracking the Dow Jones Industrial

Average is probably a pretty good idea

for you then there is the Nicky or the

nakai I'm going to be honest I have no

idea how to pronounce this one but this

is the Tokyo Stock Exchange index if

you're looking to have some global

investments outside of the US the Nasdaq

tracks the securities on the NASDAQ

exchange the FTSE 100 is the top 100

London Stock Exchange companies and then

the VIX is the implied volatility of the

S&P 500 now there are many more than

this these are just popular indexes that

people follow but as far as index funds

go there's a wide number of companies

you can go through as far as purchasing

index funds I'm going to recommend you

guys go through Vanguard and I just want

to state that I am in no way getting any

kind of kickback by recommending

Vanguard I just have talked to a lot of

people have done research myself and I

think that most people would agree that

Vanguard has the best funds out there

and I'm going to give you guys a couple

reasons first of all Vanguard offers

over 60 unique index funds and their

expense ratio so the amount that you're

paying for that fund management is 71%

lower than the industry average you want

to obviously have that expense ratio be

as low as possible so you're keeping as

much of your money as you can they also

offer bond funds they offer targeted

retirement funds so those are called

their vision funds so at that point you

could say oh I'm planning on retiring in

the year 2060 and every five years I

believe they reallocate the stock and

bond the stock and bond percentage of

that fund so your are more heavily in

bonds as you get closer to retirement so

there's those funds they also have stock

funds international funds as well as our

real estate investment trusts or REITs

funds so there's a ton of different

funds you can invest in through Vanguard

and you guys definitely want to look at

some bond funds as well as you know

diversified stock funds so for me I'm

going to recommend you guys to go

through Vanguard but I do encourage you

to you know shop around and do your own

research but the fact that they are 71%

lower than the industry average that's a

good selling point right there in my

opinion okay so the last thing I want to

cover let's say you want to invest

index funds you've decided you're going

to look at your mutual fund and see

whether or not they're beating the

market return and then you decide you

want to go ahead and buy index funds

well how do you do this the number one

way and I would say the easiest way is

to buy the index mutual fund through the

Vanguard website the only thing is they

typically have a minimum account balance

so I believe from the ones I looked at a

lot of them had a three thousand dollar

minimum balance so if you were looking

to invest less than three thousand

dollars in the fund you would be unable

to do that through the Vanguard website

but there is another way to do this that

is through an ETF an exchange-traded

fund through a secondary market so at

that point you would look up the stock

symbol and this is basically an ETF is a

mutual fund or an index fund traded like

a stock so you buy individual shares of

that index fund so that's another way

you can do that and the share price of

those ranges but you can invest as

little as the minimum price for one

share and then the third way you can do

it which is even better for those of you

looking to invest a larger amount of

money is through admiral shares and this

is something new that Vanguard is

offering this is basically where they

have larger accounts with a larger

minimum account balance I believe most

of them were $10,000 or more but these

accounts these admiral shares accounts

have an even lower expense ratio than

what they offer through their

traditional mutual fund index funds so I

would say if you're someone looking to

invest over $10,000 in a fund go through

the admiral shares if you're someone who

is looking to have all of your

investments in one place I would invest

in them through the secondary market

through your stock broker however

remember that every time you do reinvest

if you're paying Commission through your

stock broker you're going to pay

Commission but when you invest through

the website through the Vanguard website

the mutual fund you're not going to be

paying Commission every time you add

more to your mutual funds so do keep

that in mind but anyways guys that's

pretty much all I got for this video

this is index funds in a nutshell I hope

you guys enjoyed this video if you have

any questions leave them in the

description or the comment section below

I'll be sure to answer them if you guys

enjoyed this video please drop a like

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any future uploads and as always I thank

you for taking the time to watch this

video

you

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