To start comparing quotes and simplify insurance-buying, check out Policygenius: Thanks to Policygenius for sponsoring this video!
In this video, I will show you exactly how to buy your first index fund (the right way).
Index funds are baskets of stocks designed to replicate/track a specific market index.
They are passively managed investments that offer low expense ratios/fees vs. actively managed funds.
Index funds typically match the risk and return of the overall index that they are trying to track.
There are over 2,400+ index funds available to be traded, with many different types.
Here are a few examples:
1. Broad Market ($VTI)
2. Market Cap (Large, Mid, Small)
3. Equal Weight ($RSP)
4. Factor-Based (Value, Div, Volatility)
5. Sector-Based (Banking, Tech, etc.)
6. International (Track a specific index)
7. Debt (Bonds, etc.)
Stay tuned throughout the entire video as I give a live demo of me purchasing an index fund!
Please share the video with a friend.
🔥 WBF University – Join My School Here:
⮕
My FREE M1 Finance Training Video:
⮕
My FREE Stock Market For Beginners Guide:
⮕
GET MY HOME AFFORDABILITY SPREADSHEET HERE:
⮕
FOLLOW ME ON INSTAGRAM:
⮕
⏰ Timestamps ⏰:
0:00 – Intro
0:39 – What is an Index Fund?
1:49 – Types of Index Funds
3:29 – What Do Index Funds Cost?
5:41 – What Are The Risks of Index Funds?
7:03 – Pick An Index Fund
8:58 – How to Pick the Right Index Fund
11:59 – Index Fund Overlap
14:49 – Policygenius Spot
16:12 – LIVE DEMO BUYING AN INDEX FUND
18:17 – My Thoughts
21:08 – LOL
ABOUT ME 👇
My mission is to provide my viewers with actionable content that enables them to create financial wealth. My videos reflect my real-world experience as a real estate investor, stock market investor, student of finance, and entrepreneur.
This channel allows me to share my passion for personal finance, stock market investing, real estate investing, and entrepreneurship. I produce content that I would want to watch, and because of that, I give 100% effort to every video that I make. I also believe in complete transparency and open communication with my audience.
Subscribe if you are interested in:
#Investing
#Finance
DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. I am merely sharing my opinion with no guarantee of gains or losses on investments.
AFFILIATE DISCLOSURE: Some of the links on this channel are affiliate links, meaning, at NO additional cost to you, I may earn a commission if you click through and make a purchase and/or subscribe. However, this does not impact my opinion.
Hey everybody welcome back to whiteboard Finance my name is Marco and I'm here to Help you master your money and build Your wealth thanks to policy genius for Sponsoring this video but more on that Later in today's video I wanted to Create a mini tutorial it's not going to Be like an hour or an hour and a half Long like some of my stock market for Beginners videos but this one's actually Going to teach you how to invest in Index funds the right way it's gonna be A very simple overview of pretty much What index funds are what to look for What questions to ask and actually how To buy them we'll do a live demo here at The end of the video so without further Ado let's get right into it so I threw This presentation together just because I feel like PowerPoints are the easiest Way to learn Um so let's start from the beginning Here what is an index fund so index Funds are baskets of stocks that's why I Use this image over here to the right That's how you have to think of these Things designed to replicate or track a Specific market index so if you're not Familiar with what an index is I'm sure You've heard of the S P 500 I'm sure You've heard of Dow Jones Industrial Average uh Russell 2000 Et cetera Etc there's a bunch of these Different indices out there the thing
With index funds is that they're Passively managed meaning that there is Not an active portfolio manager which We'll talk about later in this video the Other thing is is that since they are Passively managed they are typically Able to give you lower expense ratios And fees versus actively managed funds Which I'll show you an example of here In the next slide or two and they also Typically match the risk and return of The overall index that they are tracking So a lot of people think that index Funds are always fairly priced uh just Because of efficient market hypothesis Theory this is basically saying that hey All this information is available out There in real time and these Securities Are trading at exactly their fair price At all times some value investors would Disagree with that but that's not the Scope of this video I did a little bit Of research before this video and there Are actually 2400 index funds that exist That are able to be traded on public Markets the first type that we have here Is the broad market ticker symbol vti For example this is vanguard's total Stock market index fund this contains Over 4 000 different companies so 4 000 Different publicly traded companies is Designed to mimic the broad Market as a Whole number two is market cap index Funds so these are broken down by large
Mid cap or small cap if you don't know What caps are that basically stands for Market capitalization this is Essentially your share price multiplied By shares outstanding which will give You different valuations if you're Looking for the definitions of large mid Cap and small small cap you can check Out my stock market for beginners video Number three is equal weight an example Of this would be ticker symbol RSP so Say you're trading the nifty 50 say There's 50 stocks in this portfolio each Stock is going to have a two percent Weight in this portfolio 50 times two is A hundred percent number four is Factor Based so there's different factors that You can trade you can have value you can Have dividend yield you can have Volatility such as low volatility stocks Number five is sector based so sectors Are just different sectors of the Economy which you can see in the picture Over to the right you have things like Energy materials banking technology etc Etc number six is international tracks a Specific foreign index such as like uh Hang sang or Nick K or the ftse for Example number seven is debt which are Typically bonds moving on uh we need to Get into fees and what index funds cost Because this is a huge huge factor in What your overall returns will be during The course or during the life of this
Investment so your expense ratio that The classic definition is basically your Fees divided by total investment but a Much easier way to look at this would be Say for example you have a hundred Thousand dollars uh invested in a Certain fund and it charges you a 0.03 Percent expense ratio all you're going To be coming out of pocket is thirty Dollars a year so you're not going to Actually see this money leave your Account it's actually going to be Reflected within the return of the fund Itself so you typically want to look for An expense ratio of 0.35 percent or less Especially if these things are going to Be passively managed not actively Managed great ones are actually point One percent and less so I'm going to Show you this example I'm going to go to The next slide just so you can see it in A little bit bigger scale here so we Have two different Investments you have Investment one investment two investment Ones expense ratio is one percent let's Percent let's pretend you have your Money with a traditional financial Advisor who typically charges you Anywhere from 1.5 percent and less we're Going to use one percent for their Example and let's say you're invested in Something that charges you 0.03 percent so over the course of this Investment let's say uh your initial
Investment is ten thousand dollars up Front let's just say you plop in uh 10 Grand all at once you add five thousand Dollars a year for your annual Edition Your investment return over the course Of 30 years let's just say is six Percent you can see the difference of Seventy four thousand seven hundred and Forty five dollars just in expense Ratios over these 30 years so investment One is going to cost you roughly seventy Seven thousand three hundred dollars Investment two with the much lower Expense ratio uh 97 basis points less is Actually going to cost you 2 566. again the difference being seventy Four thousand seven hundred and forty Five and that's just with an investment Of 10 grand plus five thousand times Thirty years with a 6 growth rate if you Invested much more or if you're much More aggressive these numbers and this Difference is only going to become Bigger and bigger so what are some of The risks investing in index funds well Investing in general is risky duh work As investors we are compensated for our Risk that's the whole point of being Investors if it was a risk-free rate of Return then the growth is uh supposedly Not going to be as high you're Compensated for the amount of risk you Take on as an investor so what the first Risk is that it can rise and fall with
The index so depending on what you're Invested in let's just say you're Invested in vti total stock market well You can see what that's done since the Beginning of this year at the time this Recording we're down about 15 16 percent Maybe a little bit less number two is That there's no downside protection Because this is a passive investment Okay there is no active portfolio Manager you know maybe getting you out Of the investment before trouble hits or Maybe taking advantage of downturns in The market which leads us to point Number three is that these index funds Can't take advantage of opportunities It's because they're simply tracking an Index they're not actively managed Number four again stems from being Passively managed that you can't cut Your losers again there's no human Cutting the losers and trying to Optimize your return they're simply Tracking a basket of stocks which form An index that's why they're called index Funds and then number five I think I've Beat this point to death here is that There is no portfolio management their Passive Investments So let's talk about step number one okay How do we actually uh get into these Things how do we start buying these Things but we first need to understand Hey I've done my research I understand
What an index fund is but now we need to Pick one index or multiple indices so we Want to construct a long-term portfolio That's the beauty of index fund Investing uh Index Fund investing you're Not setting your day trading you're not Sitting here swing trading I mean you Potentially could a lot of people trade The spy Spy which tracks the S P 500 However in the context of this channel We're talking about constructing a Long-term portfolio that you're not Going to fomo In and Out of right fear Of missing out so number one is think of This like a pie okay over here that's Why I use this picture specifically this Is just an example of a three-fund Portfolio it's called 80 20 because 80 Is dedicated towards equities 20 towards Bonds number two you can look at large Cap so like S P 500 or total market like Vti for example people if you want to Look at like small cap value you can Look at ticker symbol avuv this is Avantis's small cap value fund you can Look at international funds vxus this is Vanguard's international ETF or index fund and then number five You have BND which can comprise of Basically bonds which which make up this 20 in this 80 20 number right here so You can assign weights to this portfolio So when you think of your pie think of The slices having different weights so
Say for example if I'm going to go with A large cap a small cap an international And a bond you can do 50 percent of the Large cap you can do 15 percent of the Small cap value you can do 15 percent of The international and if you want to Keep that 80 20 intact you can go with 20 percent of BND makes sense this is Just an example you guys you don't have To do this so step number two is picking The proper fund so there's different Types of large cap there's different Types of international there's different Types small cap for example so you need To ask the right questions before Investing in an index fund so number one Is which index tracks the index you're Trying to track best okay there's Different types what is the expense Ratio again we saw in slide number two Or three how important having a low Expense ratio is over time especially if You're going to be invested for any Significant portion of time like 10 20 30 years for example I would personally Go to etf.com and read each one of these Brokerages or whoever is offering these Different index funds is going to have a Prospectus if you want to check them all Out at once etf.com is a great example Which we're going to do right now so This is etf.com it's a great website I Have no affiliation with this website Whatsoever but they have top news they
Have different head-to-head comparisons Of different index funds like right here You have spy versus ivv for example you Have vti versus itot there's a lot of Different things that you can do Research on but if you're looking for Specific fund all you have to do is type In the ticker symbol so I typed in vti Typically the first article is just Going to get you to the index fund Overview page and you can see their Different gradings you can see all the Different things that comprise of the Index fund you can see right here here's Vti's summary data you can see its Inception date it's about 21 years old Now you can see its expense ratio 0.03 Just like in our example you can see how Many assets are under management it's Got over a quarter trillion dollars Invested in it so you can see how Popular these things are and what the Ins and outs of them are you can click On things like efficiency you can see What makes up the top 10 sectors you can See what makes up their top 10 Holdings In this case six percent of vti is made Up of by Apple Microsoft Amazon Tesla Alphabet very Tech heavy and you can see That from right here you can see that Technology makes up 15.27 percent so These are some things that you need to Do you before obviously investing your Money you can't just blindly put your
Money in an index fund and hope that it Goes up you need to understand what's in This index fund and why you're investing In it in the first place so step number Four in picking the proper fund is Understanding if you have too much Overlap in your portfolio so let's just Say you decide to invest in multiple Index funds and multiple ETFs you need To understand if you have overlap the Reason for that is because you may be You may have a very inefficient Portfolio so say you have a portfolio of A hundred thousand dollars and you split It 50 50 between two different funds Well if you have there's a lot of Overlap between those funds your a not Getting proper diversification B you're Just doing the work twice for no reason Right you're splitting up your money in Two different funds when you're Essentially buying the same exact Equities from each fund so I'm going to Show you exactly how you can check this Out right now so this is a website Called Etfrc.com basically stands for ETF Research Center which you can see right Here the cool thing is is that they have A function or a tool on their website That shows you fund overlap so if I was Going to use the example that I just Talked about if I want to find the Overlap between vti and schd for example
You just put in the two ticker symbols And it'll show you exactly what's Overlapping and what percentage is Overlap by weight so in between these Two funds we have 98 overlapping Holdings so 2.7 percent of vti's 4 000 Holdings which I mentioned earlier are Also an schd and 99 of schd's 103 Holdings are also in vti so this sounds Kind of pointless at first to invest in Both of these but I'll show you why it Necessarily isn't you have to look at The overlap by weight okay remember There's different weights in these Different index funds index funds are Just a basket of stocks typically these Are weighted by market cap so say for Example Apple being number one in vti Was probably because they have a really Big market cap so the weights between These two ETFs aren't necessarily going To be the same which means that you may Not have that much overlap even though 99 of schd's Holdings are also in vti if That makes sense so you can see the Different weights here you can see the Top 10 entries you do have to pay if you Want to open up some premium features But you can see all the different Overlapping Um equities right here so this is a very Powerful tool if you're going to Introduce multiple index funds into your Portfolio and then finally the fifth
Question or the fifth step in picking The proper fun is understanding what Other funds do they provide so say for Example you want to roll with vti which Is a Vanguard fund and you're happy with Vanguard the way their their fund is run The way their brokerages ran you can Start to look for other different funds That are offered by Vanguard BND for Example is offered by Vanguard vti is Offered by Vanguard vxus which I Mentioned in this video is offered by Vanguard schd is offered by Schwab you May want to look at things like schg for Example or other Schwab funds same thing With Fidelity same thing with Avantis You need to look into the family of Funds to build a proper Index Fund Portfolio however you don't have to Stick with just one brand or one Brokerage in fact some people would Argue I'm just going to use this as an Example you know what if you had a Collapse of like Lehman Brothers for Example and all of your funds were with Lehman Brothers right so sometimes it is Better to have index funds from Different brokerages or different Offerings now step three which is the Most important step is picking a Brokerage and buying the fun which we're Going to do a live demo but before that Uh here's a word from today's sponsor Policy genius if you have anyone relying
On your income you need life insurance It's that simple we all hope we never Need life insurance but mortgage Payments child care and other expenses Don't disappear when you are gone since Life insurance typically gets more Expensive as we age now is the time to Buy policy genius gives you a smarter Way to buy and find the right coverage For you and your family my wife and I Use policy genius When shopping for a Life insurance policy after our daughter Was born policy genius was built to Modernize the life insurance industry Their technology makes it easy to Compare life insurance quotes from top Companies like AIG and Prudential in Just a few clicks to find your lowest Price with policy genius you can find Life insurance policies that start at Just Seventeen dollars per month for Five hundred thousand dollars of Coverage policy genius has licensed Agents who can help you find the options That offer coverage in as little as a Week and avoid unnecessary medical exams They're not incentivized to recommend One insurer over another so you can Trust their guidance there are no added Fees and your personal information is Private no wonder they have thousands of Five star reviews on Google and Trustpilot your loved ones deserve a Financial safety net you deserve a
Smarter way to find and buy it head to Policygenius.com whiteboard Finance or Click the link in the description to get Your free life insurance quotes and see How much you can save thank you for Sitting through that spot it allows me To provide content like this for free so Now let's get into the final step of a Live demo I'm actually going to buy an Index fund for you right now so this is My Schwab account you can do this with Robinhood you can do this with Weeble You can do this with a million different Brokerages but I'm just going to show You uh Charles Schwab so uh if you do Have Schwab you want to go to trade and You want to go to all all-in-one ticket They're pretty much all going to be the Same whether you're with Fidelity or With Robin Hood or with whoever all you Have to do is find this ticker symbol That you're interested in remember Finding that right Index Fund in this Example I'm going to use vti so just Just to give you some understanding if You've never done this before this is Basically a ticker symbol this is kind Of like uh it's like an address okay It's like sending mail to someone you Want to find the right thing that you Want to invest in so that's what ticker Symbols are used for you can see right Here this is what it costs per share Okay so right now it's trading at 201.20
Per share and you can also see the range Of the day it was anywhere from 199 uh 62 cents to 205.63 you can see the 52-week range Anywhere from 174 to 244 okay so what We're going to do is we're just going to Click on buy we're going to buy one Share and you have an order type so you Can buy this at a limit so I can set a Price saying hey I'm only going to by Vti if it hits 200 per share or I'm Gonna buy vti if it hits 185 dollars per Share right but since for the sake of This video I'm just going to buy a share For you I'm going to go to a market Order which basically buys it at Whatever it's trading at in this case 2015 so you then go down to review order It'll give you a little summary here It's basically telling you hey Marco you Are buying one share of vti at uh its Market price for today only do you want To reinvest the dividends I always Reinvest my dividends uh and it's going To be roughly 201 So then you zoom out click place the Order and then boom this is the order uh I received it I bought one share of vti So it's really as simple as that the Hard part in doing this is a few Different things so as always I give you My thoughts at the end of the video what I think with Index Fund investing is the Pros it's very simple it's very easy to
Start you don't have to sit there and Analyze a million different stocks Individually you don't have to read you Know 10K reports you have to read Financial statements all you have to do Is think of a higher thesis understand What you want to invest in and then Simply just buy the index funds that Track that index it's a super super easy Way from for 99.9 percent of people Watching this video who want to invest In the market long term you don't have To burn the Midnight Oil and not have a Life and try and pretend like you're Some you know investment you know Analyst when in fact that you got three Kids you're going to soccer practice You're going to piano lessons you're Doing all this stuff this is just a very Easy way of building your wealth long Term the second thing is is that the Expense ratios are so low I can't stress This enough you guys if you were to go With a traditional financial advisor or They're going to be in the neighborhood Of you know 0.75 to maybe 1.5 percent if You go with the hedge fund they may be You know the famous 2 and 20 uh two Percent plus some profits and all that Stuff which most of people watching this Video don't have that high of a net Worth to even entertain that Conversation so for the for diy-ers uh Investors such as myself have been doing
This since I was 18 years old I just Turned 35 on December 10th I feel like I'm getting old I've been investing for 17 years you guys so index funds are the Way a majority of my net worth when it Comes to stocks are in index funds Personally The only thing that I can see being a Con of index fund investing there's a Few of them but for the sake of this Video I'll just simply say that a lot of People don't have patience okay they Don't let the market do its thing uh They get they get attracted to different Things like 99 million different cryptos They get attracted to things that are You know shiny object syndrome fomo oh Tesla's exploding I'm gonna buy some Tesla things like that there's nothing Wrong with that but that should be a Very small portion of your portfolio uh Again if you're not a professional Investor or if you're not focused laser Focused on different things such as real Estate or day trading or whatever Um 99.9 percent of you will be well Served to invest in index funds for the Long term so as always I hope you got Value out of this video thank you for Sitting through the sponsor policy Genius I personally use them Um I'm happy to be with them because I Actually use the product and also it Allows me to make these videos to you
For free I don't sit here and try and Sell you stuff I've been doing this for Five years now haven't asked you to pay A single penny for my videos I will start to release my own products Such as whiteboard Finance University in The future but that's only when they're Ready to be released and they're going To provide a ridiculous amount of value For the amount charged thank you so much For watching and have a prosperous day Index funds those are so boring bro Dude I'm in my mom's basement and I'm Definitely smarter than the world's Highest paid quants algorithms trading Shops hedge funds portfolio managers uh 4.7 GPA from Cornell University lives in New York City Mom get the pizza rolls I'm definitely Smarter than that
