Want to become a millionaire? Index funds have helped our family achieve this 7-figure milestone. Jeremy Schneider from Personal Finance Club is an index-fund evangelist and thinks they are a great place to start with your investing journey.
Check out our interview and learn how to get started investing with index funds today.
Episode Overview with Guest Jeremy Schneider
Jeremy Schneider and I review the following:
- What index funds are
- Why index funds are so effective
- The simple strategies to become a millionaire with index funds
When I started my investing journey, I wish I knew the power and simplicity of index funds. Investing would have been so much easier and I would be SO much further along in my financial independence journey. Wherever you are on your financial journey, this interview will show you how to invest in the stock market and keep the process easy.
Who is Index Fund Champion Jeremy Schneider?
Jeremy Schneider is not your average guy. He founded an Internet company in college and sold it at the age of 34…for over 5 million dollars! He then went on to retire early at the age of 36.
But Jeremy isn't sitting poolside sipping mai tais. Instead, he's on a mission to promote financial literacy with his Personal Finance Club.
One way he does that is by educating people about the importance of index fund investing.
What is Index Fund Investing?
One way to build wealth is to buy things that go up in value. Typically, that means investing in stocks. Individuals can buy shares, or little slices of companies, such as Apple or Google.
But how do you know which share to buy? It can be complicated, which is why investing is offputting to so many people. But thanks to index funds, it doesn't have to be.
Rather than spending hours researching and actively trading stocks to try to pick the best company, index funds allow you to own a small slice of many companies. Hundreds to be exact. An index fund is designed to allow investors–that's you!–to buy little slices of all the companies traded on different stock market indexes.
Diversify for Less Risk
That way, you don't have to worry about picking the next best company. Instead, you own shares of all of them. That way, if one company has a bad year or folds entirely, there are plenty of other companies to balance out that loss.
By purchasing index funds, you can guard against a bit of the risk that comes with investing.
Reduce Fees to Make More Money
Another feature of index fund investing is the low (or no!) cost. Actively managed funds with fund managers can come with high fees. Index funds do not. In fact, these low-fee brokerages raced each other to offer the lowest fee. As a result, there are even no-fee options! That's a big win for investors, who get to keep more of their money.
Why Do Index Funds Beat Individual Stock Picking?
We've all seen the headlines and read the clickbait articles of the overnight stock investing success stories. The problem with putting most of your money into just a handful of companies is that if even one company does poorly, you could wipe out some or all of your investments.
Index fund investing guards against that. How? If you are invested in hundreds of companies through an index fund, what is the likelihood that every company will have a bad year at the same time? Pretty unlikely. In fact, the stock market has historically returned an average of 10%.
Additionally, index funds allow you to take a “set it and forget it” approach to investing. There's no need to actively monitor your account, trying to time when to buy and when to sell. And of course, there's no need to worry about commissions on trades or high-fee actively managed funds.
Jeremy Schneider stresses that while index funds may not have the sex appeal of individual stock picking, they more than make up for it with their returns.
How Do I Become a Millionaire with Index Funds?
As an index fund champion, Jeremy Schneider knows a thing or two about them. As someone who's spent a great amount of time digging into historical stock market data, he realized that there is no date in history where investing $250 a month would not make you a millionaire in 40 years.
According to his research, that investment strategy would typically put someone at $1.9 million. There was even a timeframe where someone would end up a multimillionaire with $3 million.
He also emphasizes that millionaire status comes with investing $250 a month for 40 years. By investing more, you can either shorten your timeline and become a young millionaire, you can grow your net worth even more, or both!
While the past performance of the stock market can't predict the future, it does make Jeremy feel confident in his choice to use index funds.
The Magic of Compound Interest
Another aspect of index fund investing that is important to understand is compound interest. Compound interest is money magic. Why? Your money makes money…and then that money makes more money.
The concept can be a little difficult to wrap your mind around at first. So let's look at an example.
Jeremy suggests considering a Roth IRA. Imagine that you contribute the maximum limit to a Roth IRA one year. That's $6,000 in your account. If we use 10%, which is the historical average of stock market returns, you earn $600 that year. Not too shabby!
Year two is where things start to really get exciting, though. You cruise through another twelve months making automatic contributions and you've maxed out your Roth IRA again. Fantastic news!
That means you put another $6,000 in the account. For this hypothetical, let's imagine you've got another wildly consistent year of returns, so the market hands you 10% again. That's another $600. So your interest from the first year combined with the second is $1,200.
But there's more! Last year's interest hung out in your account all year. So that $600 also grew by 10% or $60. So that means in two years of investing, you've managed to add $1,260 to your account.
That's only two years! Imagine what that progress will look like in five, ten, or even fifty years. When you first start investing in index funds, your account grows because of your hard work. You're earning money to make contributions. As time goes on, however, more and more of the growth comes from compound interest.
You're literally making money while you sleep.
Pitfalls Jeremy Schneider Warns About
Investing in index funds can come with some bumps in the road. That's especially true when you first get started.
It can be overwhelming to open an account. Choosing a brokerage and knowing which buttons to click can feel daunting. Thankfully, there's a ton of different information about getting started online.
Check out this list of the best investing apps to help you get started.
No matter how you open your account, Jeremy says another pitfall to watch out for is what you do with your money. Contributing to the account isn't enough.
You actually have to invest the money once it's inside the account. Otherwise, your money just hangs out in a money market account earning next to nothing. That's why it's so crucial to make sure you open the account and then click “buy” to purchase the index fund you want.
Jeremy also cautions against trying to time the market. Instead of looking for the perfect time to start investing or to add to your account, set up an automatic contribution and let compound interest get to work.
Closing Thoughts on Jeremy Schneider and Index Funds
While index fund investing may not have the same appeal as meme stocks or digital currency, Jeremy Schneider sees index fund investing as a consistent path to building wealth. In fact, his research shows that setting aside a few hundred dollars a month over the course of your working career may even make you a millionaire.
If you're ready to get started with index funds, I've laid out 10 steps to get started investing today.
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Guest Bio – Jeremy Schneider
Jeremy Schneider is a successful entrepreneur, personal finance expert, and Michigan alum! After starting an internet company in college and selling it at the age of 34 for over $5M and retiring at 36, Jeremy has dedicated his life to teaching personal finance.
He founded Personal Finance Club, a community of champions of the individual investor who help further financial education. Jeremy likes playing beach volleyball and writing bios about himself in the third person.
Jeremy Schneider Resources
- Website: Personal Finance Club
Other Content You Might Like
- Index Funds vs. Individual Stocks: How to Keep Investing Simple
- How We Became Millionaires in 10 Years
- JL Collins: How to Invest in Index Funds to Reach Financial Independence
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Carpe Diem Quote
“The courage to press on regardless – regardless of whether we face calm seas or rough seas, and especially when the market storms howl around us – is the quintessential attribute of the successful investor.”― John C. Bogle
What do you think of index funds? Do you like the advice from Jeremy Schneider?
Please let me know in the comments below.
Keep piling into VTSAX and letting the market do the work (just not today haha). Love when stocks are on sale!
Hi Andy – in regards to index fund investing, i have invested in other Vanguard funds for years and most (not all) have done really well. As i’m middle aged (40’s), should i be looking to move out of these funds that have done well and over to index funds?
Hi Steve! If it’s not broken, then no worries about fixing it. Right?
It sounds like you’re doing well with other Vanguard funds. I wouldn’t change course based on what I’m hearing.
If you’re already with Vanguard and looking for advice for your personal investments, I’d suggest checking out Vanguard’s personal advisor services — https://investor.vanguard.com/advice/financial-advisor/
Low fees to help you with advice and manage your portfolio! (Looks like there is a $50k minimum balance required)