Index funds. Some people love them, some people hate them. And for the latter group – they must hate them either because they prefer to watch their wealth grow at a snail’s pace, or because they have so much free time they’d rather waste it on individual stock picking. To each their own!
But if you’ve been my reader for a while, you know I love index funds because they’re the easy way to invest in the stock market and get an average of 10% growth year over year. But even with my index fund love affair, I have to tell you… You can harness their power AND ALSO do better. Read on.
If you’re new to index funds, start with these first:
- Simple Investing for beginners: From beginner to investor in 15 minutes
- Best Trading Platform USA – Start Investing in Stocks
- What Are The Best Stocks to Buy For Beginners: The 2 best for your 1st purchase
Table of Contents
Yes, Index Funds Are Great Because…
- My favorite aspect of index funds is that they require little thought and are easy to automate. This simplicity saves mental space so you can focus on better things. Automation is pretty key for me during the “busy” times of my life. I wish I could do it for every part of my day-to-day. Then maybe my goldfish Alejandro would still be alive. (Just kidding… Alejandro was a guppie.)
- Also, you know the saying “The good things in life don’t come easy?” Well, index funds are easy, and they’re also good. In fact, they match or beat the performance of stock picking in almost all situations.
- Another great thing about index funds is that they are pretty robust during recessions and other big events, so there’s a reduced risk associated with “being in the wrong stock” at the wrong time.
- And lastly, index funds have easy liquidity, so you can easily pull out when a great opportunity presents itself.
That last point is actually THE point. Having money in index funds lets you harness their best features, and still have it relatively free to take advantage of other investment opportunities.
So to sum, up, the magic of index funds is that:
- They do what they’re supposed to do.
- They are easy.
- And they keep you open to better opportunities by freeing up your liquid net worth.
Wow. So amazing. So versatile. So.. why am I writing this article?
What Could Be Better Than An Index Fund?
The stock market is what the laymen typically think of when they hear “investing” but it’s definitely not the only way. In fact, there are a few investments that will consistently blow the stock market out of the water in terms of performance, but you have to know what to do.
Read more: How to Invest: At every wealth level + 2 HUGE myths!
Even if you have your money in index funds, you can pull it out when you need it and:
- Invest in a course, a certificate, or training that would give you a promotion or a pay raise.
- A $10K education upgrade could easily yield a $10K raise – making for a 100%/year payoff.
- Invest in converting your basement into a rentable apartment.
- A $10K reno to your basement can get you a cool $24K/year in rental income – that’s a 240%/year payout!
- Invest in a rental property if the housing market conditions are too good to pass up.
- If you buy a house during a downturn, for a 20% discount, it can inflate your annual returns to 12% – 15% per year.
- Or buy a more aggressive property and let the index fund liquidity be your safety net in case of big expenses or bad months.
- All houses have bad months, but you can weather the storm by relying on your liquid assets and have a huge home value appreciation to look forward to.
Read more: 3 Types Of Rental Homes And The Investing Strategy That Goes With Each One.
Ok, So What’s An Index Fund Good For?
I like to think of my index funds as a savings account but better. It holds my money until I find something more impressive to do with it, and then it keeps the rest.
It’s like a diving board to jump into other, more aggressive investments when I’m ready.
But it’s also an easy way to keep my brain clear, where I know my money (along with billions of other people’s dollars) is growing at a steady pace.