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Simple Little Things. Investing In ETFs and Index Funds.

Please see my Disclosures page before checking out today’s post.  I am not a financial advisor or planner, nor am I a CPA.  The contents of this post are provided for informational purposes only- make sure to do your own research! This post may contain affiliate links.

This post is largely inspired by JL Collins’s The Simple Path To Wealth.  It’s a fantastic read, and really breaks down a lot of the core concepts we refer back to over and over here at Creative Finance.  I highly recommend you check it out- but in the meantime, let’s get to the core of JL’s philosophy, which is keeping things very simple.

I notice amongst a lot of folks I talk to about personal finance and investing, that there seems to be a lot of apprehension over “What do I invest in?!?”.  And there really doesn’t need to be so much uncertainty.

If you’re a bit market savvy, or at least try to keep up with the latest headlines, I’m sure you’ve heard all kinds of funky things cross the airwaves these days.

Tesla and Apple just did stock splits- what happened?!”

“Hermagawd, Zoom is up 41% in 24 hours and I missed it!”

Franklin Shepard Inc. is filing for bankruptcy and my retirement savings are GONE!”

(Hint: one of these things is not like the other.)

Sweet, sweet reader.  It’s going to be ok.  Take a deep breath in, deep breath out.  We’re going to shut out all the noise.  There is a very, very simple path to wealth ahead of you.  And I’m going tell you about the one (and potentially only) kind of investment you need to make to find your way to that glorious end of the rainbow.

ETFs and Index Funds.

What’s The Fund?  Tell Me What’s A’Happening!

In order to properly understand the concept of investing in index funds (and evaluating if that’s the right move for you personally) it’s time to introduce a little stock market vocabulary.  You’ve likely heard of some of these terms, but might not know exactly how to use it in a sentence.

Stock – A stock is an investment in a company.  When you buy a stock, or “share” of that company, you literally own a piece of them.  Generally speaking, a very small piece of that company.

Stocks can go up or down depending on the success of the company, and investor confidence in the future success of that company.  Companies will sell their stock through a “stock market exchange”, or the “stock market”. 

So as an investor you can invest in stocks with different companies, and if those stocks go up- you make money.  If those stocks go down- you lose money.

When we consider the notion of retirement and how it’s imperative that we “make & grow money” for our future non-working years- it can make the decision of what to invest in a bit more dizzying.  

What if you invest steadily into a Roth IRA (my favorite retirement account for creative professionals, and really anyone over 18 and making any money annually), and you take all that money you contribute to that account and invest in one company.  Your risk is then consolidated to the performance of that one company.  What if they go bankrupt in five years?!  (just to illustrate a point).

It doesn’t bode well for all that money you saved and invested with them.

Enter Stage Left…

Index Funds & ETFs – An index fund or ETF (exchange traded fund), is a collection of many different stocks, bundled together in a portfolio to track the success or downturns of many different companies all at once.  You can buy this collection of companies as one stock share.

They provide broad market exposure (you’re invested in multiple different companies), they can have low fees and expenses compared to actively managed funds (the kinds of investments financial advisors and professionals run and maintain for larger corporations), and provide dividends in the same way that stocks do to their shareholders.

These funds are designed to track and mimic the general market- so generally speaking if the market goes up, your portfolio goes up.  And down, down.  

Up, down, up, down.  That’s all the market ever does, right?

So even if you’re investing in index funds, you might think, “But how can I ever get it right Broadway Joe?  How do I know when the time is right to invest, or to sell?”

Send Help!

Time’s Like An Ocean, The Market Is My Boat, And I’m Just Drifting Right Along…

Let’s make the concept of investing even that much simpler.

Timing is irrelevant.

Consistency is what matters most.

The best advice I can offer to someone who chooses to go down the route of saving and investing for their retirement- is set a regular schedule for yourself, and stick to it- no matter what happens to the market.

If an individual investor can contribute $6,000 per year to a Roth IRA, that person should aim to make regularly scheduled deposits to maximize that $6,000 contribution every year.

That would mean depositing about $115 per week, or $500 per month.

The reason we do this consistently and regularly is to dollar-cost average our investments.

The whole point of DCA or dollar-cost averaging is to reduce the volatility of investing in the stock market.  You’re going to buy in both when the price is high, and when it dips- but in the end, you should theoretically achieve an average, and be better off than trying to time the market by your own accord. 

Timing the market is something even the most prolific economists and financial professionals struggle with- so why should we try?  They don’t attempt back handsprings, or belting out a high Bb in front of 1,200 people every night.  We all have professional focus.

By employing a strategy of regular and steady investment, you’re going to maximize your potential return in the long run.  And it’s so darn simple.  At Creative Finance we really like simple.

These Are A Few Of My Favorite Funds

So where do we go from here?

I don’t want to leave this post without giving you some real-world examples of index funds and ETFs I think are worth exploring.  It’s a prudent time to remind everyone… I am not a financial advisor.  

I don’t pretend to be- nor do I want to be in this moment in time.  

But I am happy to share on concepts I understand and believe in- and will go as far to let you know which of these funds I myself invest in.  But again, it’s personal finance.  There are so many options out there.  I hope this is a good base for exploration, and you can find the perfect kinds of stock investments for yourself.   

1. VTI / VTSAX – Going back to JL Collin’s The Simple Path To Wealth (it’s really a great read), I think everyone should educate themselves in John Bogle, the man who created the first index fund in the 1970s through Vanguard.  VTI and VTSAX are two Vanguard funds that track the entire US Stock Market.  It has exposure to small, mid-size, and large companies, and low fees at 0.03%.  That means that for every $10,000 you have invested in let’s say VTI, you pay $3 in annual management fees.  However if we are expecting an annual average return of 8%, the fund has (theoretically) generated $800 in profits for you in the same time span.  I am personally invested in VTSAX (the “admirals share” version of VTI, they are in essence the same exact thing.  Homework: look it up!).  This is the lion’s share of my retirement investing, and my very simple strategy forward of how I know I can one day retire easy on the money I’ve saved, invested, and grown.

2. QQQ – The Invesco QQQ Trust is a “tech-heavy” index fund, tracking returns along the top 100 companies in the Nasdaq Index.  Companies like Apple, Microsoft, Google, Amazon, Facebook, and so on.  It has a slightly higher expense ratio than something like VTI- QQQ costs about 0.20%.  But their returns have been historically higher, as it’s more closely linked and weighted to these large companies that have shown tremendous growth in the tech age of the last 13-14 years. A portion of my investing also goes into this fund, because personally when I say the names of those companies mentioned above out loud- that’s what I want to be invested in.  Yes, we have come immensely far in 14 years of tech, but I believe there’s still a long ways to go, and I’d like to see my money continue to grow alongside those companies as well.  But don’t forget- we’re in the land of index funds!  If one of those groups happens to go under- it’s only part of the allocation of this fund, and the others are still trucking along with my investment.

3. JETS – J.  E.  T.  S.  JETS.  JETS.  JETS!  I’m just a little bit excited for football to come back this week, and my beloved Jets season opener on this coming Sunday.  Ok but all kidding aside- here is another example of a smaller, more focused index fund that specifically tracks the performance of airline companies.  They hold Southwest, Delta, United, American Airlines, and more.  This fund got hammered back in February/March as airline travel sunk to extreme lows.  On January 6th it was trading around $31 per share, and now as of this writing it’s trading about $18 per share.  I am not personally invested in JETS (while very emotionally invested in the NY Jets), but I think it’s an interesting example of a fund that is both diversified, but also highly specific to one area of business.  Will air travel come back strong and thus raise the value of this fund?  Only time can tell.

We Only Have Tomorrow…To Invest And Save The Day

I hope this foray into index funds and ETFs has been interesting!

There are so many different strategies to consider when planning and investing for retirement, and this is just one of many.  But I do like this strategy a lot for creative professionals.

Passive Index Fund investing takes a lot of the guess work and mystery out of this process.  You might be an absolute genius in designing light for a three-quarter thrust.  You don’t also need to be a genius in stocks, quarterly earnings reports, expense ratios, market cap, etc. to retire comfortably.

I often find the biggest allergy towards folks getting involved in investing is, “I don’t know how.  It seems so hard.  Where do I even start?”

Keep it simple.  Do some research on index funds, and give yourself a small education of how they work.  But by investing regular amounts in a steady way- you will dollar-cost average, and set yourself up for future success.

The one part of economic theory I think everyone can agree on, is we expect the market to continue to go up.  It’s higher now than it was 10 years ago.  And higher then than it was 10 years before that.  

So to that end, invest in the market.  You don’t need to hedge all your bets on a small number of companies, when you can make a bet that one hundred different companies will be stronger in the future than they are now.

All you might need are index funds and ETFs, simple little things. 

Did you enjoy today’s post on Index Funds and ETFs? Drop a comment below or send me a message with some of your favorite funds!

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