The Best 5 Index Funds To Own For Life (2024 Edition)
Summary
TLDRIn this video, Humphrey discusses the benefits of investing in index funds, a strategy endorsed by Warren Buffett. He explains the difference between index funds and mutual funds, highlights the advantages of passive management, and shares his top five recommended index funds, focusing on their diversification, low fees, and long-term growth potential.
Takeaways
- 💼 Index funds are a recommended investment strategy for those seeking a 'set it and forget it' approach, as endorsed by Warren Buffett.
- 📈 Index funds are a type of mutual fund that passively track a stock index, such as the S&P 500, providing automatic diversification across multiple companies.
- 💡 The difference between index funds and mutual funds lies in the management approach; mutual funds have an active manager, while index funds are passively managed.
- 🌐 Investing in an index fund offers exposure to a broad market or specific sectors, reducing risk through diversification compared to investing in individual stocks.
- 💻 The video discusses the use of Dropbox for organizing and accessing video files, highlighting its benefits for remote collaboration and version control.
- 🏦 Fidelity's zero fee index fund (FN LX) tracks the S&P 500 without fees by creating a blend of 512 stocks, but requires a Fidelity brokerage account.
- 🌳 Vanguard's LifeStrategy Growth Fund (VGX) is a balanced fund with 80% stocks and 20% bonds, offering a mix of growth and stability with international exposure.
- 🎁 Weeble is offering a promotion of a guaranteed $50 worth of stock for new accounts with a minimum deposit of $500, providing a bonus for new investors.
- 📊 Vanguard Value Index Fund (VVX) focuses on large US companies in slower-growth sectors, offering stability with an expense ratio of 0.05%.
- 🌐 The Total Stock Market Index Fund provides exposure to nearly every stock on the market, offering broad diversification with an expense ratio as low as 0.04%.
- 🏆 Vanguard's S&P 500 Index Fund (VFIAX) is considered a gold standard for index funds, with a low expense ratio and a history of solid returns, making it a strong choice for long-term investors.
Q & A
What is the main topic of the video?
-The main topic of the video is about investing in index funds, which are considered a good long-term investment strategy, and the speaker shares his top five index funds.
Why does Warren Buffett recommend index funds to the average investor?
-Warren Buffett recommends index funds to the average investor because they offer a low-cost, set-it-and-forget-it investment strategy that allows wealth to grow over time without the need for active management.
What is the difference between a mutual fund and an index fund?
-A mutual fund is a collection of investments managed by a professional money manager who makes decisions on behalf of the fund's investors, while an index fund is passively managed and tracks a specific stock index, such as the S&P 500, without a dedicated manager.
What is the benefit of investing in an index fund over individual stocks?
-Investing in an index fund provides instant diversification, as it includes a broad range of companies within a particular index, reducing risk compared to investing in individual stocks. It is also more cost-effective and time-saving.
What is the ticker symbol for Fidelity's zero fee index fund that tracks the S&P 500?
-The ticker symbol for Fidelity's zero fee index fund that tracks the S&P 500 is FN LX.
Why does the Fidelity zero fee index fund (FN LX) have no fees?
-The Fidelity zero fee index fund has no fees because it mimics the S&P 500 with its own blend of 512 stocks, avoiding licensing fees that would normally be associated with using the S&P 500 brand name.
What is the main advantage of Vanguard's Life Strategy Growth Fund (vgx)?
-The main advantage of Vanguard's Life Strategy Growth Fund is that it is a balanced fund with 80% stocks and 20% bonds, providing both growth potential and fixed income, along with international exposure, making it an all-in-one investment solution.
What is the difference between an index fund and an exchange-traded fund (ETF)?
-While both index funds and ETFs track an index, an index fund typically trades once at the beginning and once at the end of the market day, has larger minimum investment requirements, and may be more suitable for long-term investors. An ETF, on the other hand, can be bought and sold at any time the market is open and may have lower minimum investment requirements.
What is the ticker symbol for Vanguard's Total Stock Market Index Fund?
-The ticker symbol for Vanguard's Total Stock Market Index Fund is VTSAX for the mutual fund and VTI for the ETF version.
Why is the Vanguard S&P 500 Index Fund (VFIAX) considered the gold standard among index funds?
-VFIAX is considered the gold standard because it tracks the S&P 500 index accurately, has a very low expense ratio of 0.04%, and offers broad diversification across multiple industries with no single sector dominating the holdings.
How does the speaker suggest a beginner should approach investing in the S&P 500?
-The speaker suggests that a beginner should consider investing in the S&P 500 as it is often referred to as 'the market' and can offer an average return of 8 to 10% per year, with the understanding that returns will fluctuate year by year.
What is the significance of the Weeble promotion mentioned in the video?
-The Weeble promotion is significant because it offers a guaranteed $50 worth of stock for new account sign-ups with a minimum deposit of $500, providing a 10% bonus and serving as an attractive incentive for new investors.
What is the importance of diversification in an investment portfolio according to the video?
-Diversification is important because it spreads the investment across different types of assets, such as stocks and bonds, and across different markets, including international ones. This helps to mitigate risk and potentially increase long-term returns.
Outlines
📈 Introduction to Index Funds
In this video, Humphrey introduces index funds as an optimal investment strategy, particularly for those seeking a hands-off approach. He highlights the endorsement of this method by Warren Buffett, emphasizing the importance of regular contributions for long-term wealth growth. Humphrey clarifies that this is not a quick致富 (get rich quick) scheme but a slow and steady path to wealth accumulation. The video aims to educate viewers on the distinctions between index funds and mutual funds, with a promise to discuss the top five recommended index funds, updated from a previous video in 2021. He also mentions the use of Dropbox for organization and collaboration in his content creation process.
💼 Understanding Mutual Funds and Index Funds
Humphrey provides a detailed explanation of what an index fund is, contrasting it with a mutual fund. He describes a mutual fund as a collective investment where a professional manager makes decisions on behalf of investors, typically charging fees. In contrast, an index fund is passively managed and tracks a specific stock index, like the S&P 500, offering diversification across numerous companies. Humphrey also discusses the concept of Exchange Traded Funds (ETFs) as equivalents to index funds, with differences in trading times and minimum investment requirements. He introduces the Fidelity zero fee index fund (FN LX) as a cost-effective option for tracking the S&P 500, noting its no-fee advantage and the need to use Fidelity's brokerage account.
🌐 Diversification with Vanguard's Growth Fund
The video continues with a discussion on Vanguard's LifeStrategy Growth Fund (VGX), a balanced fund consisting of 80% stocks and 20% bonds. Humphrey explains that this fund offers a mix of domestic and international exposure, aiming for a balanced investment strategy. The fund's expense ratio is noted at 0.14%, and Humphrey provides historical performance data, suggesting potential for better returns if international equities perform well in the future. He also mentions a promotion by Weeble, offering a guaranteed $50 stock bonus for new account sign-ups with a minimum deposit.
🏦 Stability and Growth with Vanguard Index Funds
Humphrey discusses the Vanguard Value Index Fund (VVX), which focuses on large, stable US companies that may grow at a slower pace than the broader market. He notes the fund's low expense ratio of 0.05% and its historical returns. The video then shifts to the Total Stock Market Index Fund, available on different platforms with varying ticker symbols. Humphrey emphasizes the fund's broad exposure to nearly every stock in the market, offering ultimate diversification. He concludes by discussing the Vanguard S&P 500 Index Fund (VFIAX) and its ETF equivalent (VO), highlighting their low expense ratios and historical performance, suggesting these as potential long-term investment choices.
🌟 Conclusion and Additional Resources
In the final segment, Humphrey reiterates the importance of investing in index funds for long-term growth, acknowledging that past performance is not indicative of future results. He encourages viewers to take advantage of the Weeble promotion for a free stock and invites questions and feedback in the comments. Humphrey also recommends his 'Investing For Beginners' video for further education on investing, wrapping up the video with a reminder of the key points discussed.
Mindmap
Keywords
💡Index Funds
💡Mutual Funds
💡Passively Managed
💡Diversification
💡Expense Ratio
💡ETF (Exchange Traded Fund)
💡Fidelity Zero Fee Index Fund
💡Vanguard Index Funds
💡Stock Market Index
💡Weeble
💡International Exposure
Highlights
Index funds are recommended by Warren Buffett for a 'set it and forget it' investment strategy.
Index funds are a long-term investment strategy, not a get-rich-quick scheme.
Index funds are passively managed, unlike mutual funds which have a professional money manager.
An index fund invests in a stock index, such as the S&P 500, providing automatic diversification across many companies.
Investing in an index fund is cheaper and more time-efficient than buying individual stocks.
Dropbox is used by the speaker for organizing and collaborating on video files with a remote team.
Index funds and ETFs are often used interchangeably, with slight differences in trading times and minimum investment requirements.
Fidelity's zero fee index fund (FN LX) tracks the S&P 500 without fees, mimicking the index with a blend of 512 stocks.
Vanguard's LifeStrategy Growth Fund (VGX) offers a balanced approach with 80% stocks and 20% bonds.
Vanguard Value Index Fund (VVX) focuses on large US companies in slower growth sectors, offering stability.
Weeble is offering a $50 stock bonus for new accounts with a minimum $500 deposit.
Total Stock Market Index Funds provide exposure to nearly every stock on the market, offering ultimate diversification.
Vanguard S&P 500 Index Fund (VFIAX) is considered a gold standard with a low expense ratio and broad diversification.
Investing in an index as a whole is generally safer than investing in individual stocks.
The speaker recommends considering both the S&P 500 and Total Stock Market Index Funds for long-term investment.
Investors can choose between the ETF versions of index funds for more flexibility, such as VTI for total stock market exposure.
Transcripts
what's up guys Humphrey here today we're
going through in my opinion one of the
best methods to invest your money and
that is through the use of index funds
these are great for those of you that
want a set it and forget it type of
strategy and it's even a strategy that
legendary investor Warren Buffett swears
by and says that quote the average
investor should put their money in a
lowcost index fund and that's his
primary recommendation by simply
contributing and investing regularly
into these funds your wealth will grow
over time now I do want to note that
this is a long-term investment it's not
some type of get rich quick type of
thing you aren't going to see your
portfolio double in the span of a few
months but if you are the type of person
that likes getting rich slowly and
steadily than this strategy is for you
in this video we're going to explain the
Nuance differences between index funds
and mutual funds because I think it's
important to know the difference and
then we'll go over my top five funds and
I've actually updated this list since my
last video on the subject back in 2021
now if you would like to just skip ahead
to the top five index funds you can
definitely do that through the time
stamps and chapter markers but I think
that if you do stick around for the
context you're not only going to
understand more about investing but be
more self- assured with those choices
all right so a brief definition of an
index fund it's basically an investment
that you can buy within your brokerage
account it's a popular term but to
understand how it works we need to
actually explain a different type of
fund that came first which is known as a
mutual fund a mutual fund now is when
investors pull their money together to
invest in stocks and other Investments
and the fund typically has a
professional money manager making
decisions on behalf of that fund so
let's just pretend 10 for a second you
and I we both have $100,000 each that's
pretty dang nice and maybe another 100
people also have $100,000 and we all
pull our money and give it to a money
manager and that money manager's job is
to invest in a selection of stocks or
Investments on our behalf in order to
get the largest return in exchange for
this service the money manager will
charge you a fee because hey they need
to feed their kids and buy a house as
well but the idea is that they're trying
to beat the market returns in this case
you might be paying a High fee for being
invested with this money manager so a
mutual fund has a money manager involved
but an index fund does not have a
manager it's actually passively managed
however an index fund is actually a type
of mutual fund so I know that's a little
bit confusing but for the purpose of
today's video all you need to know that
an index fund just implies that it
invests in a stock index an index would
be something like the S&P 500 it's a
collection of the top 500 companies in
the United States or in the UK they have
something called The footsy 100 which is
comprised of the top 100 companies in
the UK so an index fund investment seeks
to automatically track and invest in all
of the companies in that particular
index and that way all you have to do as
the investor is to buy the index fund
and by buying that one fund alone you
get a small slice of every company that
is within that index that means you're
automatically Diversified because your
investment is now spread across say 500
or a thousand different companies and
buying an index fund is way cheaper than
buying individually those 500 companies
on their own not to mention it probably
saves you a crap ton of time as a
financial YouTuber keeping my content
and data visuals organized across
various platforms can be a headache
finding video assets and keeping three
team members all organized is like
managing one big group project and it's
crucial to be organized to consistently
put out quality videos that educate you
all now that's where Dropbox comes in
I've been using it with my team for the
past couple of months to organize edit
and access our video files from anywhere
in the world as you guys may or may not
know Ricky my editor is based in Toronto
and I'm here in California in addition I
have a short form video editor Andrew in
Detroit Dropbox is a great centralized
platform that allows us to collaborate
on files together all remotely in
addition to keeping track of where
things are at all times for example I
really enjoy their shared workspace and
folders you can search for a key term
within Dropbox to find any file quickly
instead of digging around to find the
correct folder that the video or
document file is in not only that with
Dropbox my team can access files on
multiple different devices such as our
phone or our tablets in addition to our
computers we can even do it from
different locations
say a coffee shop or co-working space
and I personally like to visit those
places for a change of scenery lastly
with Version Control this will show you
all the previous versions of the file
and any activity that has happened to
that file including if it was moved or
edited and if you'd like to restore a
file to its original version you can do
that easily now that I've been using
Dropbox I can't imagine running my
business without it no matter how large
or small your business is your team can
benefit from a single place that keeps
you organized for a reasonable price
like Dropbox learn more by clicking the
link down below and thanks again to
Dropbox for sponsoring this portion of
the video you may also hear people using
index fund and the term exchange traded
fund or ETF interchangeably this is
because most Index Fund have what's
called an ETF equivalent and those two
funds typically have the same exact
Holdings there are some slight nuances
in how they trade so for example index
funds only trade once at the beginning
of the day and once at the end of the
market day versus an ETF can be bought
and sold at any time the market is open
index funds usually also have larger
minimum investment requirements so
sometimes in the thousands of dollars
for some of the funds out there and
that's why if you don't have the minimum
you may opt for an ETF that tracks the
index instead for most investors though
the difference is going to be pretty
negligible between ETFs or index funds
but if you are interested in the nuances
of them I will leave some further
reading for you guys down below in the
description all right so let's actually
get started with the list of index funds
today starting with number five which is
ticker symbol FN LX this is a fidelity
zero fee index fund that tracks the S&P
500 and one of the main benefits of this
fund is that according to its name it
has no fees most index funds carry some
type of fee and those fees usually come
from licensing payments that the broker
will have to pay to the S&P 500 for
using that brand name of S&P 500 so what
essentially Fidelity has done here is
that they've created their own blend of
512 stocks in this case to mimic the S&P
500 so that they can avoid paying those
fees and offer you a zero fee expense
ratio show type of index fund this
particular fund has been around for 5
and 1/2 years and has been tracking the
S&P 500 returns since then and you can
see that the average annual total
returns for this fund are right around
9.15% for the past 3 years and 15.81%
for the past 5 years now the downside is
if you can even call it a downside is
that you need to use Fidelity's
brokerage account and it's limited as
such now if you're already on the
Fidelity platform that's probably a good
thing but if you're invested in say a
different brokerage let's say you're
using Vanguard we Robin Hood Etc and
you're thinking about switching over
just to buy this fund I would say it's
probably not that worth it since the
other index fund fees that you're
probably investing into on other
brokerages are ideally quite low say
four or $5 a year for $10,000 invested I
don't think it's that big of a deal
Vanguard for example has an index fund
under the ticker symbol vfiax and that
also tracks the S&P 500 and the expense
ratio is extremely low we're going to
talk a little bit more about that Index
Fund in particular later on in this
video and why I prefer that one over
this version so make sure to stick
around for that now if you're a complete
beginner the S&P 500 is typically what
people refer to as the market and when
you are investing in the S&P 500 you can
typically expect a return of around 8 to
10% per year on average of course if we
were to look at the year-by-year
performance it's not like every single
year returns 8 to 10% what you actually
have in actuality is that some years are
going to be plus 20% plus 15% and then
other years are going to be down so in
2022 the entire index as a whole was
down close to 20% still though this is
going to be a really solid choice for
most people and it's really nice to not
have to pay a fee it just adds peace of
mind just be aware that if you ever want
to transfer or leave Fidelity you may
have to sell this fund and transfer your
money out that way which means you might
incur a capital gains tax hit so you
can't just simply transfer this Fidelity
holding to any other brokerage Index
Fund number four today on our list is
vgx this is vanguard's life strategy
growth fund as they like to call it and
what that means is that it's a balanced
fund comprised of 80% stocks and 20%
bonds the idea here is that it's
designed to give you some of the upside
of stocks while giving you some fixed
income via the bond Holdings as well as
some International exposure a portion of
the stocks are actually allocated
towards International and a portion of
the bonds are also allocated towards
International bonds as well essentially
it's like an all-in-one index fund that
seeks to just give you an easy set it
and forget it type of approach now the
way that this works is that overall it
just invests in four other Vanguard
funds so you'll get the total stock
market index fund the total
International stock market index fund an
international bond fund as well as a
domestic bond fund all from Vanguard now
just to give you some notes on
International exposure International
stocks have actually underperformed the
US for the past decade or so but there
are going to be some runs of decades in
which International stocks will
outperform the United States you can see
here that depending on the time frame
International stocks can outperform the
S&P 500 and vice versa so if you're
someone who thinks that we will revert
to the mean eventually having some
exposure in your portfolio of
international stocks could be a good
thing since we don't actually know which
markets the United States or
International stocks will be more
successful in terms of investment
returns moving forward having broad
diversification is never a bad thing but
it might actually test your patients a
little bit this Fund in particular has
an expense ratio of 0.14% so that means
on every $10,000 that you have invested
in it you will pay a yearly fee of $14
this fund has returned about 8% uh since
Inception and the three-year return is
not that great but overall I think that
if International equities start doing
better in the future this fun could see
some upside now one thing I wanted to
share with you guys before we get into
index fund number three is that Weeble
is actually giving away a guaranteed $50
worth of a stock as long as you sign up
and fund your account with a minimum of
$500 this is one of the better stock
promotions I've seen in a while because
a 10% bonus on your $500 deposit is
actually quite good just make sure to
invest it for the long term and that
should be a really nice bonus for you so
the link for that will be down below and
any link that you use of mine will
actually help support the channel so
thank you for that okay third on our
list today is ticker symbol vvx vvx is a
Vanguard value Index Fund which invests
in the stocks of large US companies in
Market sectors that tend to grow at a
slower Pace than the broad Market that
means it's typically investing in large
safe companies and in short it's less
about growth and more about stability
when it comes to this fund the return of
this fund since it was started in 2000
has been roughly 7.42% and in The Last 5
Years it's returning just a hair under
12% at 11.99 as you might have kind of
picked up from today's video Vanguard
index funds are some of the cheapest on
the market with super low expense ratios
and this particular Index Fund has an
expense ratio of
0.05% that means for every $10,000 that
you have invested in this fund you'll
pay about $5 a year in fees which is
pretty dang good now this particular
Index Fund has 328 total stocks within
it and the top 10 Holdings include
things like JP Morgan Berkshire hathway
Exxon Mobile Home Depot Etc the median
market cap of a holding in this fund is
$13.6 billion so these are typically
larger companies that are going to be
pretty stable the downside of this
particular Fund in my opinion is that
since it's so focused on large companies
these companies May underperform the
broader stock market but in a downturn
they may not be as volatile as others I
think the other caveat that you must
know about Vanguard index funds in
general for this video is that you
typically need a $3,000 minimum to even
invest in them also Vanguard funds are
typically only available on the Vanguard
platform so if you want to invest in it
outside of Vanguard or perhaps you want
to invest a lower dollar amount what you
can do is buy the ETF equivalent instead
which is ticker symbol vtv for example
if you pull up a brokerage quote vtv is
listed here for around $160 per share
and you can buy it directly like this on
the market all right Index Fund number
two today is going to be the total stock
market index and there are a few
different ticker symbols for these
depending on what platform you're on so
on Fidelity it's going to be
fzx and on Vanguard it's going to be
vtsax now the Fidelity version obviously
will have no fees or no minimums but the
Vanguard one as you can tell will have a
$3,000 minimum unless you buy the ETF
version which is vti the expense ratio
is 0.04% so $4 for every $10,000 that
you have invested into it and the beauty
of this Index Fund in my opinion is that
for one price One Fund you get exposure
to
374 stocks essentially every single
stock on the stock market this gives you
the ultimate exposure to everything and
ultimate diversification since you're
buying basically everything now when you
contrast this to the S&P 500 Fund in
this fund you will own some smaller
companies so if you do want small cap
exposure this is the fund that you would
want to buy if you do opt for this fund
there's no need to add an S&P 500 Fund
in addition to this because you would
just have overlapping Holdings and it
would be unnecessarily complex now as
long as the market goes up over time you
will be making money now since this fund
was created back in 2000 for Vanguard
the fund has returned 8.2% and in The
Last 5 Years it's returned 14.9% so in
that way it is the One Fund that you can
put your money in and just forget about
it entirely I hope that you don't
actually forget about it but that's the
entire gist is that you can kind of just
let it kind of go on its own and it's
passively managed and therefore your
money grows in the background while you
do other things but I do think that
there is another index fund that we
should cover in today's video and that
is number one
vfiax and the ETF version of this
particular fund is sticker symbol vo if
you've been watching my channel you've
probably seen me talk about this one it
is the Vanguard start S&P 500 Index Fund
and in terms of all the index funds out
there I think it is the gold standard
the S&P 500 Index is Diversified it has
investments in over 11 different
Industries with not a single sector
being more than 30% of the waiting in
terms of vfiax it has an expense ratio
of 0.04% so again that's very cheap the
average expense ratio by the way if you
didn't already know is around 63% to 74%
for many mutual funds out there so it's
good to note that this one is very
reasonable now if you do remember from
earlier fnilx the Fidelity zero Index
Fund also mimics the S&P 500 but I
actually prefer the Vanguard one because
this one in particular is actually
tracking the index and it's not just
being like close enough or trying to
mimic the Holdings and I personally
really enjoy that in terms of the
Holdings itself this particular Index
Fund is weighted by market
capitalization so it invests
proportionately into the company's based
on how big those companies are so that
means right now this fund owns a lot of
The Magnificent s so micros roft Apple
Nvidia Amazon meta Google are all at the
top of the list of Holdings in terms of
the fund returns since Inception it has
averaged about 7.97% and in the past 5
years it's done pretty well at 15.76%
now again just because this is a
Vanguard index fund you will need
probably $3,000 minimum to invest but
you can always choose the ETF version
which is ticker symbol vo and that's
what many people will probably opt for
so again if there was one index fund
that you could probably invest in for
the rest of your life I'd probably
choose between ticker symbol vo or vti
today those are the S&P 500 or the total
stock market index index funds but there
are always going to be funds for
different people and their preferences
and just because these funds have
performed well over the past three five
10 years it doesn't mean that they are
going to continue that way still though
I like my chances of investing in an
index as a whole rather than investing
in a bunch of individual stocks again if
you want that free stock from Weeble
worth at least 50 bucks when you deposit
$500 check the link down below and then
let me know what questions you guys have
in the comments and if you are
interested in another video for
investing make sure to check out my
Investing For Beginners video right here
it is really good and packed with a
bunch of information thank you for being
here I'll see you guys in the next one
all right peace
[Music]
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