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How We Became Millionaires with Index Funds | Vanguard, Schwab, & Fidelity

hey guys it's a mom and Kristina from

Aris journey today we are talking about

the index fund and if you know our story

you know that we are index fund

millionaires we were government

employees quietly sitting in our

cubicles investing in index funds and it

allowed us to achieve financial

independence and retire early and so on

today's video we are gonna dive deep

into index funds and talk about them in

a way that most people do not talk about

them provide a brand new perspective

when it comes to using them as an

investment tool for financial

independence so in this video we are

gonna go over the history of the index

fund how it helped us become

millionaires and we're gonna go over our

top picks for index funds with Vanguard

Schwab and fidelity so before we get

started we want to actually define what

an index fund you have to define first

so an index fund is a portfolio that

tracks different stocks bonds and other

securities and an index fund is actually

a type of mutual fund but that's where

it ends a lot of people think mutual

funds and index funds are

interchangeable that they're the exact

same things but they are not an index

fund is just one type of a mutual fund

so what's so unique about an index fund

is that it is set up to match an index

or track a particular market now other

mutual funds that are not index funds

they are different because instead of

trying to match the market they are

trying to beat the market now this

difference between an index fund and a

mutual fund is very important because

the sole purpose of a mutual fund is to

beat the market on the other hand the

sole purpose of an index fund is to

match the market or match whatever

sector it is set up to track now this

brings us to our history lesson for the

day you see it is very important when

you are investing to understand your

history and history when it comes to

investing is a powerful tool it will

keep you on track when times get rough

so the history of the index fund

actually starts in 1970

the index fund was invented by Jack

Bogle the founder of Vanguard so before

1975 the only way you can invest in a

batch of stocks was through the mutual

fund now the problem with this was that

mutual funds could rarely beat the

market so Jack Bogle came up with this

earth-shattering groundbreaking idea

which was rather than trying to beat the

market why not create something that

would mimic the market oh and he had

some haters because as soon as he said

that he had invented the index fund and

his idea as simple as it was created so

much controversy because admit that you

did not need the mutual fund manager and

even till this day you still have index

fund haters because how can you justify

charging people in exorbitant amount of

money to manage a mutual fund when the

index fund is beating it so by creating

the index fund a huge chain of events

occurred first you no longer need an

individual to manage the fund second it

cuts out all of these costs costs become

a lot lower and performance becomes

better because you're tracking the

market and this is the best part it made

it easier for individuals regular

investors to invest in the stock market

you see there are thousands of mutual

funds and thousands of mutual fund

managers and so it is very hard to pick

who is the best mutual fund manager

who's going to be the all-star that year

when it comes to investing in the market

but if you are trying to mimic the

market to match the market you just pick

the index that does that so this brings

us to our style of investing we have

always invested in index funds we have

never invested in mutual funds with a

mutual fund manager that's trying to

beat the market we are just trying to

mimic the market and that's why we

choose index funds and this is where we

get deep into the philosophy of

investing in index funds

you see index fund investing is a

long-term investment

whereas mutual fund investing you are

actually being more speculative because

when you invest with a mutual fund you

are speculating that that mutual fund

manager

is gonna have the right pics year in and

year out but when you are investing in

index funds what you are saying is that

you believe in the history the

historical run of the stock market

always going up so even though index

fund investing is long-term and it's

fairly automatic you still have to do

some research and determine what type of

index funds you want to invest in now

for us Eon our fire journey we decided

to focus on an index fund that tracked

the complete total stock market and an

index fund that tracked the S&P 500 now

when you hear that we were investing in

the S&P 500 and the total stock market

some of you may be saying well why

because both of those indices are very

similar well at work through our 401ks

the SMP 500 was the best investment that

we can make at work but outside of our

work account outside of our 401k

investing in the total stock market was

the best investment for us now the

difference between the SP 500 index fund

and a total stock market index fund is

that the SP focuses on the top 500

companies on the stock market whereas a

total stock market gets them all against

the small ones and it gets the big ones

we've invested in bang guards V FIA X

that's Vanguard 500 index fund for

Admiral shares and year-to-date it's up

over 23% it has an expense ratio of 0.04

percent Schwab also has an SP 500 index

fund that is up around the same amount

and has an expense ratio of 0.02 percent

fidelity as well up 23 point 17 percent

and an expense ratio of point zero one

percent but not all index funds are

created equally it has to deal with the

brokerage firm that creates the index

fund so for example we found the Ryder

SP 500 CE which is through guggenheim

investments it's up twenty point five

nine percent which is good but when you

compare it to other index funds it's not

that great also the expense ratio is a

whopping two point four one percent now

this is an example of an index fund that

tracks the S&P 500 but is making less

money for its investors because of the

huge

offense ratio and this is because the

brokerage firm creates the index fund so

when you select that index fund you are

deciding to invest with that particular

brokerage firm so this is a very

important point because you are picking

the company that you are going to be

investing your money with and there are

a lot of different companies out there

but be careful who you sign up with

because there are some brokerage

companies that will charge you X or

berate fees for their services and then

there are some brokerages that would

charge you reduced fees and investing in

index funds is always about getting to

the lowest fees because all index funds

should be tracking the same indices so

if you go with the firm that's charging

you 2% to track the sp500 you are being

robbed because there is another firm

called Vanguard Schwab or fidelity that

is charging you way less than that for

the same index fund

now we ultimately decided to select an

index fund with Vanguard and we chose

Vanguard because of several reasons one

is because of the low cost index funds

the second is because of the various

accounts that we can open with them

including custodial accounts for our

girls we also opened up a Roth IRA

accounts with them and we use Vanguard

to roll over our old 401 KS into a

traditional IRA

so what we want to do now is talk about

the specific index fund that we invested

in Vanguard

but what like we said we realized that

there's other brokerage firms that exist

and so we want to focus on Vanguard on

Schwab and fidelity so we're going to

talk about what we invested in Vanguard

and then we're also going to talk about

the equivalent investments with Schwab

and fidelity now you have a lot of

choices when it comes to investing in

index funds but for us the total stock

market has always been what we felt the

most comfortable investing in because we

believed in the overall stock market we

believe that overall it will go up

so in Vanguard we invested in BTS ax and

we did a whole video on BTS ax and

everything you need to know about it but

BTS ax has been the number one

investment for us on our financial

independence journey

I mean year-to-date and BTS ax is up

over 22% I mean the return by just

tracking the stock market has been

amazing and that is the power index

funds is that when you invest in them

over the long term you see that type of

growth so like we said BTS ax has a

year-to-date performance of twenty two

point five three percent but Schwab has

a similar total stock market index fund

called SW TSX its year-to-date

performance is twenty-two point five

eight percent but its expense ratio is

actually lower at point zero three

percent and fidelities equivalent total

stock market index fund is VZ ro X it's

your today performance is twenty two

point seven eight percent but it's

expense ratio is zero percent so we did

that to illustrate the strong

similarities between total stock market

index funds now what it comes down to is

the preference that you have when it

comes to picking the brokerage that

you're going to be buying your total

stock market index fund with because

that is the most important thing as well

you need to be able to feel comfortable

investing with that company so take a

look at the expense ratios take a look

at their customer service because they

may be holding millions of your dollars

and you want that relationship to go

smoothly now we didn't have millions of

dollars when we first started investing

in index funds but what was important to

us

was finding the right index fund knowing

the brokerage firm that we wanted to

invest in and doing our proper research

so for you if you're interested in

investing in an index fund make sure

that you do the research so that you

know how to properly invest and if you

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