The Power of ETF’s and How They Can Make Your Financial Future All-The-More Brighter.

ETF’s (Exchange Traded Funds), as well as their similar counterparts Index Mutual Funds, are not only the simplest and most efficient investments one can make - but historic data proves they are undoubtedly the most profitable.

Let’s go back to 31 December, 1975 for a moment, when John (“Jack”) Clifton Bogle invented the Vanguard 500 Index Fund to match the returns of the S&P500 (Standard and Poor) index - an index aimed at tracking the 500 largest, most profitable US companies from several industries.

---

In quick address of the nuance of ETF’s and Index Funds - they are technically subtly different, although you will often find the terms used inextricably in your research. An index fund directly tracks a series of indices such as the S&P500 index, providing investors with one well-diversified, low expense-fee, dividend-paying fund to have access to broad markets.

Similarly, an ETF is any diversified, low-fee, dividend-paying fund designed to track a particular index, except unlike index funds where orders are only placed at the end of the trading day, an ETF acts just like a singular stock which you can buy or sell throughout the trading day.

---

Both index funds and ETF’s track index’s like the S&P500, e.g. iShares IVV and Vanguard VOO - not with the intent to beat their performance - but simply match it.

Why should someone invest in index funds?

1. If you’re looking at investing long-term, the most popular index funds and ETF’s are in an uptrend since their inception. This is because the companies in them need to meet a particular criteria in order to remain in the index and therefore may be switched out if they are underperforming.

2. The companies in index’s like the S&P500 typically go up over time, regardless of short term price fluctuation - including the 2008 financial crisis - by approximately 8-12%.

3. The alternative is holding all your money in your bank account or savings account, with interest rates so microscopic that inflation (never less than 2-3% in Australia) will eat away at the value of your cash over time.

• Somewhat of an indirect benefit - learning more about how money works and how to save provides advantages such as less fast-food, thus increasing physical and mental health, and learning to live on less, appreciating the little things you may take for granted.

What are the risks of investing in these?

1. All investments hold some level of risk. Albeit, in the case of ETF’s and index funds - picking individual stocks, trading options, futures or just keeping your money in the bank will prove riskier in the long run.

2. You will lose money if you try to buy and sell these regularly. Short term trading is just that - it is not investing. These diversified funds are designed to buy continuously regardless of the state of the market. (That’s why this strategy provides such psychological ease - as long as you keep your emotions at bay).

3. Speaking of psychological ease, you could also lose money because you try and perfectly time when you add to your investments. As the saying goes, “time in the market beats timing the market”. A better option than careful calculations is simply to buy on a red day or red candle. Do that for years while the dividends keep compounding - and you’ll wind up with enough money coming in to pay for your yearly expenses. This is Financial Independence.

How do you purchase shares?

1. Search up “Best brokerages in [Insert your country].

2. Look for comparisons on the popular brokers/exchanges and decide what suits you.

3. Make an account and find the stock code of the ETF/index fund you want to buy.

4. Start investing! I recommend getting a portfolio tracker to track the performance of your shares. I use CMC Markets with an accompanying Sharesight account.

Learn more

• Market Psychology

• 4% Rule

• Passive Income

• “ETF’s domiciled in my country”.

• “The Simple Path to Wealth” by J.L Collins

• “Atomic Habits” by James Clear

---

{Good luck to ya guys! Investing is not risk-free, but playing it long-term with these low-risk strategies is better than working for the rest of your life. Either you work for your money, or your money works for you}. FULL DISCLAIMER: None of this is at all - financial advice. It is my own perspective and reflective of what I do. Do Your Own Research.

Watchu think about this?

References:

https://www.investopedia.com/ask/answers/06/canindexfundsgounder.asp

https://www.investopedia.com/articles/mutualfund/05/etfindexfund.asp

https://www.investopedia.com/articles/exchangetradedfunds/12/brief-history-exchange-traded-funds.asp

https://www.finder.com.au/how-to-invest-in-index-funds