- So in this video today,
we're going to be
talking about index funds
and in particular, we're
gonna be talking specifically
about Vanguard index funds
because let's be honest guys,
if we're talking about index funds,
90% of the time, we are talking
about a Vanguard product.
Now, before we get into the video though,
I just wanna mention briefly
for those who are looking
to learn more about investing
in the stock market,
I have that totally "Free
Stock Market Investing Course".
It's about four hours long,
multiple different sections,
all about getting started
with investing in the stock market.
That's gonna be the top link
in the description below
or it's simply freeinvestmentcourse.com.
If the URL's not working, you
might have to add the www,
but the best way is just to click
that top link in the description.
I've actually had over 3,000 people
enrolled in this free course already.
I've gotten a lot of great feedback
and it's just kinda my way
to give back to you guys
and give you a really good
free introductory education
to investing in the stock market.
But that being said, we're gonna break
this video up into four
different sections today.
That way, if you need to skip ahead,
maybe you already know
what index funds are
or maybe you're just looking
for one specific thing.
But the first thing we're gonna talk about
is what are index funds?
The second piece we're gonna talk about,
why do people buy index funds?
Why would you invest in them?
Then we're going to move on and talk
about Vanguard index funds.
We're actually gonna jump into my computer
and I'm gonna do a screen share
and we're gonna go on the Vanguard website
and look at a couple of different funds.
And then finally, we're gonna talk about
how to buy index funds and
I'm gonna share with you guys
my number one recommendation
as far as where to buy them.
And believe it or not, it's
actually not buying them
from the Vanguard website,
so maybe you'll wanna
stick around 'til the end
or if you want, check out the whole video
or there's gonna be timestamps
down in the description
if you decide that you wanna skip ahead.
What we're gonna talk about
first is what is an index fund?
An index fund is very simply a collection
of stocks and bonds that are designed
to replicate an underlying
index as closely as possible.
So by far, the most popular
index fund out there
is called VOO, it's called
the Vanguard 500 Index Fund.
And essentially, that
index fund replicates
the performance of the S&P
500 as closely as possible.
And the S&P 500 is simply 500
of the largest publicly
traded US companies.
So imagine if you took the 500
largest companies out there
like Apple and Google and the 500 largest,
and then you invested
a little bit of money
into each of those different companies,
well then you would effectively
have the S&P 500 Index fund.
So that is basically what it is.
There are tons of different
indexes out there.
You have the Nasdaq Index for example
or the Dow Jones Industrial Average,
or you have industry or
sector-specific indexes
like the Semiconductor industry.
So basically, it's a
way to capture exposure
to the entire broad market
or a specific market
or a specific industry.
So for example, if you
wanted to invest solely
in the Semiconductor industry
but you didn't wanna particularly invest
in one or a few specific stocks,
you could invest in a
Semiconductor Index fund
also known as an ETF.
Now, an ETF is simply
and exchange-traded fund.
So you take this index fund
that we already they have built here
that is basically
replicating the performance
of an underlying index,
and then you just simply take that fund
and break it up into
pieces known as shares.
So index funds, ETFs,
we're gonna probably use
those interchangeably
throughout this video.
Most people buy index
funds through an ETF.
That way, you can buy and
sell them on the open market
just like you would individual stocks,
and it also lowers the barrier to entry
where the minimum cost to invest in an ETF
is just the cost of one share.
But later on, I'm gonna share
with you guys my favorite way
to buy ETFs and it's a
way that you can buy them
without worrying about that share price
because of something
called fractional shares.
And then the other thing you'll
also find with index funds
is let's say, for example,
you're looking for
a growth-oriented or income-oriented
approach to investing,
well, you can actually find index funds
that will satisfy that need for you.
So you can find high
dividend yield index funds,
you could find index funds
that would give you exposure
to the cannabis industry.
So there are so many different
niche index funds out there
if you're looking for something
that probably already exists.
So it's a way to
basically passively invest
in a broad market or get like
maybe global market exposure
through some global index funds
or it's a way to basically bet or invest
in one particular industry
without maybe selecting the key players.
So for example, let's
say, I wanted to invest
in the cannabis industry
but I didn't know,
"Okay, is Canopy Growth Corp the best bet?
"Is Cronos Group the best bet?
"I don't know."
So I could instead place a bet
on the entire cannabis industry
through an exchange-traded fund.
So you can either passively
invest in a broad market
or you can go ahead and make
a bet on a particular industry
or you can also find
other growth-oriented,
income-oriented or
high-income ETFs out there
based on whatever it is
that you are looking for.
So that being said, why
do people buy index funds?
Why are more people investing in ETFs?
And we're actually seeing a trend here
which kind of blew my mind that
I wanna share with you guys.
And the trend that we are seeing here
is that there's actually money
funneling out of mutual funds
and mutual funds are basically
like what people compare
an index fund to.
This will make more sense
once I explained point number one here
but what we're actually seeing take place
is money is actually
funneling out of mutual funds
and more money is moving
into these index funds,
and the Robo investing which is basically,
rather than having an active
person managing your money,
you have an algorithm managing it
for significantly less money
or you simply passively invest in ETFs
to avoid paying those fees all together.
So the trend is moving away
from the traditional financial
advisor, mutual fund route,
and more towards this
passive approach to investing
known as ETFs or Robo investing
and with the Robo investing,
they're putting your money in ETFs anyway.
They're just allocating it for you
or basically deciding
how much of your money
goes into each fund.
But there's basically seven reasons
why people buy ETFs in the first place.
Number one is the biggest one out there
and it's this concept of owning the market
versus beating the market, all right?
And this is kind of a staggering statistic
that a lot of people are not aware of,
but the rule of a mutual fund
is to basically outperform the market
because if you're
investing in a mutual fund,
the goal is to have a better return
than you could get from
just buying an index fund.
But the scary truth is that most
of these actively managed mutual funds
are actually not even beating the market.
The number that people often throw around
is that a 90% of actively managed funds
don't actually beat the market.
So let me just explain that to you, okay?
That's basically this,
you're paying people to manage your money.
You're paying mutual fund
managers to sit there
and read up on investments
and decide what to do with your money.
You're paying them a fee
but they're not actually
beating the market.
So you're essentially
paying them to do this job
that 90% of them are failing to do so.
And so a lot of people
have woken up to this
and that is why money is
flowing out of mutual funds
and into index funds
and the Robo investing
which is a passive,
own the market approach
versus trying to beat the market.
So we know from statistics,
most money managers are
unsuccessful at beating the market,
and also most individual stock investors,
your average Joe investor,
odds are they're not gonna
beat the market either.
So just statistically speaking.
this is the best approach to investing
which is owning the market
through low-fee index funds
versus beating the market.
And even the greatest
investor of our time,
warren Buffett himself, has
said that his best advice
for investors out there
is to dollar cost average
so we're gonna get into
that in little bit here.
Dollar cost averaging being
continuing to contribute
over a long period of time,
Buffett says you should
dollar cost average
into a low-fee S&P 500 Index
fund and forget about it.
So if the greatest investor
and stock picker of our time
is telling people to
invest in index funds,
that should be indication alone
that that's what most
people should be doing.
The second reason is that index funds
are going to be a lot cheaper.
So when you're paying for people
that actively manage your money,
it's gonna be more expensive.
You have rooms full of
people analyzing investments
and making decisions, and
so typically speaking,
you're gonna see fees for a mutual fund
ranging from about half
a percent to 1% per year.
Something even more, not
to mention front load fees
which are very common,
and that essentially means
you have to pay a certain
percentage of your assets
to that fund before they even
invest any of your money.
So let's say you had a mutual
fund with a front load of 2.5%
and you're looking to
invest 100 bucks with them,
well, they wouldn't even take
your money in the first place
but 2.5% of your money
would be going right to them
before it's even invested.
And then 0.5% to 1% is
going to be taken out
as a fee every single year
regardless of whether or
not they beat the market.
So even if they underperformed the market,
you better bet they're
still collecting their fee.
So on the other hand, investing
in the Vanguard 500 ETF
which is the most popular ETF out there,
well, that index fund has a fee of 0.03%
when purchased as an ETF which
is how I recommend doing it.
So you go from having these mutual funds
that often have a massive front load fee
where you pay this fee
before you even invest,
and then they're collecting .5% to 1%
every single year thereafter
to simply paying .03% fee per year,
no front load fees, so
it's significantly cheaper.
And the reason is
because these index funds
are not actively managed.
They're simply replicating the performance
of an underlying index
as closely as possible.
So they'll look at the
S&P 500 and they look at
what companies are included in that index
and then they build a
portfolio replicating that
as closely as possible.
Most of it is simply just
handled electronically
with minimal human involvement.
The third reason is because it's passive,
it's lower risk than
individual stock ownership.
If you are investing in individual stocks,
you could easily see 20%, 30%, 40%,
even 50% drops in your stocks.
Typically speaking, under
normal market conditions,
you wouldn't see that kind of
volatility with an index fund
assuming its broad market exposure.
If you are in some kind of leveraged ETF
or something like that,
it's entirely possible,
but if we're talking your
basic run-of-the-mill ETFs,
you're not gonna see
that level of volatility
which is the up-and-down
movement of the price.
So for beginners, it's a very
beginner-friendly investment
because it's easier to stomach
the drops when they happen
and you're not gonna see
these drastic emotional price swings.
Number four, the fourth
reason people buy them
is following that strategy
of dollar cost averaging
which is essentially
continuing to buy shares
or continuing to add money
to the fund month after month
regardless of what that
share price is doing
or whatever the fund price is.
And so the reason behind doing that
is that sometimes you're buying
shares when prices are high.
Sometimes, you're buying
shares when prices are low,
but by regularly accumulating
shares on a monthly basis
or quarterly, whatever it may be,
you are paying the market
average for those shares.
And so dollar cost averaging into an ETF,
that's a very passive
strategy that's honestly
probably your best bet when it comes
to investing statistically speaking
and when you have experts
like Warren Buffett recommending it,
that's honestly the best approach
for most people to take to investing.
Number five, you'll have
diversified exposure.
You're not just investing
in a handful of stocks
or one particular stock,
you're investing in baskets
of different companies
so if you're investing in S&P 500,
you're diversified across all
these different industries.
And even if you're investing
in a sector-specific ETF
like financials, for example,
well, you're diversified across
all of these different finance companies
and banking companies and all of that.
So it's diversified exposure
rather than having all of
your eggs in one basket.
Number six, people like to invest in these
because of the ability to
earn compound interest.
Now, you can still earn compound interest
through dividend stocks and real estate
and other different ways by
reinvesting your returns,
but it's really easy with index funds
because they typically pay
dividends on a quarterly basis
and then you just take that dividend,
reinvest it back into more shares,
and then your dividends
earn more dividends
and you're earning that compound interest,
and over time experiencing
that exponential growth.
And then number seven, another reason
people like index funds is because
of something called a
TDF, a target date fund,
which is an index fund
designed for retirement,
and if you guys stick around
'til the end of this video,
I'm actually gonna show
you a TDF in action
which is if you're a finance nerd,
you might think that's pretty interesting,
but it's honestly one
of the best retirement tools out there.
So most people when it comes
to investing in index funds,
they simply passively invest in one fund
or a couple of different funds,
and then they're regularly investing
maybe every month or every quarter,
and then they're
reinvesting those dividends
to earn compound interest
and that's about all they're doing.
That is their approach to investing
and rather than trying to beat the market,
they're just passively owning the market,
and they're resting easy
knowing that they're gonna outperform 90%
of the active stock pickers out there,
whether it's individuals like myself
or big funds out there.
That is the best strategy
for most people to follow.
Now, what we're gonna do,
we're gonna jump into my computer,
go on the Vanguard website and take a look
at a couple of the different index funds,
and then, we're gonna move on
and talk about the best way
to buy index funds right now.
Okay, so here we are over
on the Vanguard website
which is gonna show us a
list of the different ETFs
that Vanguard offers,
but there's also a number
of really good educational resources
on this website as well.
I'll just briefly go over a
couple of these things here.
We already covered a lot of
this earlier on in the video
but it's good to just have maybe things
set in a slightly different way.
So over here on the website,
Vanguard goes into detail
about what is an ETF
and the ET, again, stands
for the exchange-traded,
that means you can buy
it on a major exchange
just like buying and
selling an individual stock.
And then, the fund is a collection
of many different
individual stocks or bonds
within one fund that's going to give you
that diversified exposure.
A couple more reasons here
why people invest in ETFs
if you're not sold on them already.
Well, because you're being spread out
across many different stocks and bonds,
there's less risk there.
And so if you don't have
high-risk tolerance,
if you're new to investing
or you just kinda like a passive approach,
all of those are good reasons
to be investing in index funds.
And the other thing to remember as well
as we already talked about,
most of the professional
stock pickers out there
that manage mutual funds,
well, they don't even beat the market.
So unfortunately, your
odds of beating the market
are just not good.
You probably won't beat the market.
I'm not discouraging you from going out
and buying some individual stocks.
As you guys know, I'm also
an individual stock owner
but just understand that
statistically speaking,
the best approach to investing
is diversified exposure
through low-cost index funds and I think,
buying through ETFs is the
best way to go about it.
So in a little bit here,
I'm gonna show you guys what I believe
is the best way to buy
Vanguard index funds.
It's not through the Vanguard website
and I'll explain why that is,
but I recommend buying them through ETFs
through a commission-free broker
and I will have one I'm
going to recommend to you.
We're gonna login to my
portfolio on this platform
and I'll show you exactly
how you can get started
investing in Vanguard ETFs commission-free
with this platform.
So beyond that, the other reasons
for investing in ETFs, less work.
Obviously, it's gonna be
a lot less time consuming
to just invest your money
passively into an ETF
rather than actively picking stocks
and it's significantly lower cost
because you're not paying
for active money management.
So there's not teams of people
determining what's gonna
go into these ETFs,
it's all passively managed
because they're simply
replicating an underlying index
as closely as possible.
So they don't have teams of
experts analyzing companies
and reading up on them, and
then deciding what to invest in,
you're simply passively
investing in indexes
through the index fund.
And then, of course, we're really focusing
on keeping costs as low as possible
and while there are a lot
of brokerages out there
that are commission-free and the one
that I'm gonna recommend
to you is commission-free,
there are still a number of brokerages
that still charge trading commissions.
And that may not sound
like a lot of money,
$5 to $10 per trade,
but let's say you're following a strategy
of dollar cost averaging and
maybe every single month,
you're putting 500 bucks into the VOO,
the Vanguard 500 fund.
Well, if you're doing $500 per month,
that's gonna be one trade per month,
and let's say, it's even
five bucks per trade,
well over the course of
a year, that's 60 bucks
that could be in your trading account.
That's 60 bucks that
could be buying you more
of a share of the Vanguard 500 ETF,
but instead, it's going to your broker.
So I do not recommend paying commissions.
There's a the variety of
commission-free options
and I'm gonna show you guys
my number one pick here
in a little bit but I just want you
to have that in your mind of every time
you pay trading commissions,
that's money that could have gone
into your brokerage account
that could have stayed invested
and maybe five to 10 bucks
doesn't sound like a lot
but if you're dollar cost averaging
and you have many trades per year,
that just start to add up
and it's just money
bleeding out of your account
that could be invested.
Okay, so that being said,
we are now on the page here
that shows us the different
Vanguard ETFs that are available
and I have links for all of these stuff
down in the description below
if you guys wanna open
'em up and follow along
or whatever you decide to do
but I have links down in the description.
So as of making this video,
Vanguard has 59 different ETFs available,
and I know this may look totally
overwhelming to you guys,
you might be thinking, "Oh
my god, my head is spinning",
it's really not that
much information here.
And I'm gonna specifically talk about,
I believe five ETFs on this list
that are ones that people
typically gravitate towards.
I mean, you can get very specific here
in terms of these ETFs.
For example, mortgage-backed
securities in terms of bonds.
There's all kinds of stuff
you can get into here
especially with the stock market as well,
Mega Cap companies, Mega
Cap Growth, Mega Cap Value.
So basically, what I'm gonna focus on now
are the core ETFs that
most people talk about
when they are investing.
And I also, I'm using ETFs
and index funds interchangeably here
so if I'm going back and forth,
understand I'm meaning
the same thing here, okay?
So in terms of the ETFs
that most people talk about,
the number one ETF that people refer to
is this one right here, the S&P 500 ETF.
It trades under the symbol of VOO
and it is the replication
as closely as possible
of the S&P 500 Index
which is the 500 largest
publicly traded companies.
Now, as far this ETF goes,
it carries a expense ratio
of 0.03% which is extremely low,
and the share price is 264.53.
Now, that share price right
there is one of the issues
people often run into
with their brokerages
is because unless you're brokerage
offers you fractional shares,
you would have to buy shares
in $264.53 increments.
So maybe that's not a problem
if you're investing $10,000
but let's say you have 500 bucks
you're looking to invest,
you're only gonna be able to buy one share
through that broker and
then you're gonna have
to save up more until you
can buy another whole share.
Well, the good news is the brokerage
I'm going to recommend not
only is it commission-free,
they also offer fractional shares
so you can invest in a fraction of a share
which allows you to remain fully invested
and that specific number
is you can invest in 1/10,000
of a share of any given stock
that trades on the New York
Stock Exchange or Nasdaq
and obviously, this includes ETFs as well.
So we got some other
useful information here.
We can see what the year-to-date return is
on this fund which is 16.99%.
The one-year return being 4%.
Five-year return being 10%,
and it hasn't been around for 10 years.
But we can see since the inception,
the average annual
return here has been 14%.
Now, this has been in
a roaring bull market,
so over time, we're gonna see that number
probably move closer to nine or 10,
so just keep that in mind
as we're going through here.
So if we actually click into this
and look at the VOO Vanguard 500 ETF,
it'll give us some more information
about what it is that we're buying.
So what it says here
for us is this invests
in the stocks in the S&P 500 Index,
representing 500 of the
largest US companies,
the goal is to closely
track the index's return
which is considered a gauge of
the overall US stock returns,
offers high potential
for investment growth,
share value rises and falls more sharply,
than funds holding bonds 'cause again,
you're in 100% equities or
stocks in this portfolio,
so higher risk but
higher potential return,
more appropriate for long-term goals
where your money growth is essential.
So if you're somebody who's
five years from retirement,
you're not gonna wanna put
all of your money into this fund
because you are gonna need that money
in a shorter period of time.
So you'd be looking more
at fixed income investments
and bonds and lower risk
but more conservative stuff.
So this is more for
somebody who's younger.
And you can also dial in your allocations
based on what you're doing with that money
and how long you have to grow your money.
So for example, if you're in your 20s,
maybe you have 10% of your
money in bonds, 90% in stocks.
Maybe you're in your seventies
and you have a 90% in
bonds and 10% in stocks.
Now, those aren't exact
figures but that's just
to give you an example of how
people will use these assets
to create a higher risk
or lower risk portfolio for themselves.
Again, this tells you the symbol VOO.
There's nothing else really
you wanna look at here
unless you really wanna
get into the nitty gritty
and you can also see the
performance versus the benchmark
and it does replicate it pretty
closely with the S&P 500.
One question people often ask
is how does it work with
dividends with index funds?
Well, the dividends are going to be paid
on a quarterly basis just like
with most stocks out there.
And then obviously, if you're looking
to maximize your returns,
you're gonna wanna
reinvest those dividends.
And the good thing is the brokerage
I'm gonna recommend to
you guys, M1 Finance,
they allow for dividend reinvestment
so you can earn compound interest
or if you just wanna
collect those dividends
and do something else with them,
you can also do that as well.
So now, I wanna answer the question
that I constantly get
when I talk about ETFs
and that is should I buy ETFs
through the Vanguard website
or should I buy them through
a brokerage as an ETF?
So if we click right here,
we can see that the Vanguard S&P 500 ETF
is also available as an
Admiral Shares mutual funds.
So let's take a look at these two
and talk about what would
be the better fit for you.
And again, it's gonna largely come down
to what's easier for you to remember,
what platform is more convenient,
but there's actually a big difference here
that a lot of people aren't
aware of, and strangely enough,
it's actually more expensive to buy
through the Vanguard website.
It may not be the case
with all of the funds
but with the ones that I've looked at,
number one, the minimum
investment is significantly higher
and number two, the
expense ratio is higher.
So here we are looking at the
Admiral Shares mutual fund.
This would be buying this
through the Vanguard website
and the expense ratio is 0.04%
with a minimum investment of $3,000.
Now, if we go back here a look at the ETF,
that expense ratio is 0.03%
though it's actually cheaper to buy it
outside of the Vanguard website
and as far as the minimum investment,
well, if you're in a brokerage
that only allows the
purchasing of whole shares,
your minimum investment
is the price of one share
but the brokerage I'm gonna show you
allows fractional shares
so your minimum investment is a lot lower.
In fact, the minimum to
open a brokerage with them
is 100 bucks and so you could pretty much
have a minimum investment here of $100,
open an account with them
and then start building a
diversified portfolio of ETFs
or invest in some other
pre-built portfolios.
So this is by far the most popular ETF
that people talk about, VOO.
I just wanna show you guys
a couple of other ones here
just to show you some
of the different funds
that people often invest in.
But before I do that,
I just wanna go over the
different categories here
so you guys know what's available.
Obviously, you have your bonds,
you have treasury bonds available to you
which are going to be considered
to be the safest investment
out there, your treasuries,
and then you have
investment-grade corporate bonds
as a category, and then you
also have tax-exempt bonds
which your going to be municipal bonds.
So if you wanna have exposure
to those different types of bonds,
you can do so through these ETFs.
Then they have all kinds of US stock ETFs,
large-cap, mid-cap, small-cap.
Then, you can get exposure
to international markets.
So here's one right here,
International Total World Bond ETF,
Total International Bond ETF,
Emerging Markets Bond ETF.
So you can get very specific here
in terms of what you're looking for.
Then they have International Stock ETF
so they're gonna give you
exposure to global markets,
emerging markets, Asian
markets, European markets,
whatever you're specifically looking for.
And then, you also have
sector and specialty ETFs.
And these can be particularly
interesting for people.
So one reason why you might
buy into one of these ETFs
would be if you had a hunch.
So, let's say, for example,
you believed that the financials industry
was gonna outperform other industries
or outperform the market
over the next five years.
Well, maybe you don't
wanna buy Wells Fargo
and Chase Bank and Bank of America stock
because you don't know
which one is gonna do well.
You just think the industry as a whole
is going to perform well.
Well, one of the options
you have available to you
is to purchase a sector ETF
of the financials market.
So this would be this one right here, VFH,
you can look at the return and everything
but if we actually open this up,
we can take a look at what are
the actual largest holdings
of this particular ETF.
So as we scroll down
through this website here,
we can see different
information about this
as far as what are sectors
are involved in this fund.
The number of stocks, 423,
$7.7 billion in assets,
and then 42% of the money is
in the 10 largest holdings.
If you wanna know what
those companies are,
they are listed right here.
So it's JPMorgan Chase,
Berkshire Hathaway,
Bank of America, Wells Fargo, Citigroup,
American Express, US Bancorp, CME Group,
Chubb, and Goldman Sachs.
So if you, again, wanted to be bullish
on a particular industry
without picking the winner,
you can just bet on
the industry as a whole
if you believe it going to outperform.
And there's a bunch of
different industries here.
You can find ones for energy, financials,
healthcare, industrials,
information technology.
And then this is also a
popular one people invest into
which is VNQ which is the Vanguard REIT
which is real estate investment trust.
The easiest way to explain
that is it is real estate
that trades like a stock.
So the underlying fund owns real estate
and then your dividends
is basically the income
produced from that property.
In order to be classified as a REIT,
90% or more of the profits
must be passed back to shareholders
in the form of dividend payments.
So that's another interesting way
to get some exposure to real
estate through the ETFs.
But that being said, these
are available to you here,
all these different
sectors, specific ETFs.
I just wanna go ahead to show you guys
a couple of the other popular ETFs
people typically may
include in their portfolio.
One of them is this right here, VXUS.
This is the total international stock ETF
if you looking for exposure
to stocks outside of the US.
So what this is is the total
stock market excluding the US.
So if you were looking
for a global exposure,
this may be one way that
you decide to do that
is through VXUS, Total
International Stock ETF.
So basically, every company out there
except for the ones in the United States.
Another popular one is
this one right here, BND,
the Vanguard Total Bond Market ETF
if you looking for
broad exposure to bonds.
I don't personally invest in bonds.
This is just because I'm young,
I don't really have the
need for it right now.
But a lot of people will just include this
in their portfolio for a broad
exposure to the bond market
rather than specifically saying,
"Oh, I wanna invest in
emerging market bonds
"or US treasuries."
And again, just to show you
guys another example of this
where, again, buying through
ETFs is actually cheaper.
Here we go right here, Vanguard
Total Bond Market ETF BND,
expense ratio of 0.035%.
If you were to purchase as Admiral Shares
through the Vanguard website,
again, $3,000 minimum investment
and an expense ratio of 0.05%.
So in most cases, you're
actually saving money
by investing through the ETFs
outside of the Vanguard website.
And then the final fund I
wanna show you guys here,
and there's more you may
want to explore on your own
but VTI is another popular one.
This is just the entire US stock market.
So basically every publicly
traded US company out there
would be included on VTI.
The difference between this and the VOO
is that VOO is the 500 largest companies,
whereas VTI is capturing exposure
to the entire US stock market.
So this is just another one that people
will oftentimes include
in their portfolios,
and it really comes down to
what are you looking for.
Are you looking for more risk, less risk?
And you would look at
these and see which one
is a better fit for you.
But I mean, at some points,
you may see VTI outperform VOO.
So it's probably just
any right or wrong here
but I know you guys maybe looking at this
and your head may be
spinning and you're saying,
"What do I invest in?
"I gotta build a portfolio."
Well now, what we're gonna
do, I'm gonna switch over.
I'm going to show you M1 Finance
and it takes all the guesswork
out of the equation here.
If you want to build your
own portfolio from scratch,
you have the ability to do that,
but they also have expert-built portfolios
that are built by experts.
There are no fees associated
with investing in them
and it just takes all the
guesswork out of the equation.
Okay, so here we are inside
of my M1 Finance portfolio,
as I'm sure you could've guessed,
this isn't my main portfolio.
I just put $100 in here.
That way I have a really good model
to show you guys what
M1 Finance looks like.
My reason for not investing
fully with M1 Finance
is to completely, to be
completely honest with you guys,
I just haven't gotten around
to transferring my brokerage.
They are my number one pick by far
and I'll go into many
reasons as to why that is.
Just to show you my portfolio here,
this is a $100 portfolio
I started out with
and as you can see,
one of the chunks of my pie here is VOO,
the Vanguard S&P 500 ETF.
And so this was 50% of my portfolio
which I initially built it.
And then, I invested my money
across a couple of different stocks,
Amazon, Microsoft, and Apple.
So obviously, I've gotten
pretty stellar returns here
of 31% on my fractional share with Apple,
32% on my fractional share with Microsoft.
Amazon hasn't fared too
well, about 4%, 3.5 or so.
And then, up about 8.2%
on my Vanguard 500 ETF.
So you can do exactly this.
You can build your own
portfolio from scratch
with whatever stocks
and ETFs that you want
or you can take advantage
of the expert pies.
And if you guys do decide
you wanna learn more
about M1 Finance, take
a look at the platform,
check it out.
There is a link down in
the description below.
For the purpose of full transparency,
I will tell you it is an affiliate link
so if you do use that link,
I will earn a commission at
no additional cost to you.
Your use of that link is,
of course, not required
but it is very much appreciated
as it allows me to put
videos like this together.
These are somewhat time-consuming,
I love talking about this stuff
but your use of my links
really does help me out
in terms of being able to continue
to provide these types of
videos online for free.
But that being said, now
I wanna show you guys
how you would go about investing
in some of these passive
portfolios through M1 Finance.
So first of all, in
terms of doing research
on this platform, it's really easy
and it's very user-friendly.
So up top here on the Research tab,
you can look at stocks, you
can look at specifically funds,
you can look at your pies
that you've already built,
you can have multiple different pies here
if you wanted to have like a passive pie
and an active one and compare the two.
And then you can also
look at the expert pies
which are all prebuilt portfolios
that you can invest in.
So we'll start with these 'cause I think
this is what most people
gonna be interested in,
and then, if you also wanna
be active with your selection,
you can build your own
portfolio from scratch.
And another one of the advantages
of going through a brokerage like this,
not only are you actually, in most cases,
paying a lower expense ratio
than investing on a Vanguard website,
but you also have the flexibility
of investing in other funds like BlackRock
or there's a number of
different funds out there,
like, let's say, you're looking
for a Semiconductor ETF.
You may not find that with
Vanguard but I'm willing to bet,
there's gonna be another
provider out there
that offers that fund.
Well, if you're solely investing it
through the Vanguard website,
you wouldn't be able to buy
anything but Vanguard products,
whereas what I'm showing you
guys here with M1 Finance,
you can buy anything that
trades on the major exchanges.
So we'll start off here by
looking at this one right here,
just stocks and bonds.
This is as simple as it gets.
It's just an allocation
of stocks and bonds
with two holdings, okay?
So let's say, for example, you are younger
and you have a high tolerance for risk.
Let's say you went with a
90/10, 90% stocks, 10% bonds.
If you click on it, it'll
show you the performance
and it'll show you the
underlying holdings here
which is VT Vanguard Total
World Stock Index Fund,
and BND, we already talked about BND
in terms of bond exposure.
So if the Total Bond Market
and the Total World Stock
Market, 90% stocks, 10% bonds.
It would be as simple as
picking this portfolio
and then continuing to contribute
to it on a regular basis
through dollar cost averaging.
And then as I'm sure you guys can guess
on the other end of the spectrum,
the 10/90 is simply 10% in
the World Stock Index Fund
and 90% in BND.
So if you just wanna keep it
simple and do stocks and bonds,
you have passive prebuilt portfolios
that you can just dollar cost average into
without even worrying
about building a portfolio.
If you wanna get fancier,
they certainly do have those options,
if we go into the general
investing category.
This is gonna give you set portfolios
based on your risk tolerance.
So let's say, you have very
high tolerance for risk,
you could go for the ultra
aggressive portfolio,
and it'll show us down here
what your holdings are.
Oddly enough, they're all Vanguard ETFs
because these are the best ETFs out there.
I'm not gonna go through all the holdings
but based on the expert analysis,
they've constructed a portfolio
that is going to give you
ultra aggressive exposure here,
so high-risk, high-return.
And then, so it looks
at, look at this here,
it's very heavy in equities,
you got a little bit in REITs,
and like 1% in bonds, so
your mostly equities here.
Whereas if we go ultra-conservative,
as I'm sure you guys can bet,
you're looking at mostly bonds.
But here's an example where you have
some different stuff in here.
You have some iShares products.
That's another fund provider.
For whatever reason that the
people who built this portfolio
must have found this fund
the more appealing for this.
So you have the iShares Treasury Bond ETF,
the iShares National Municipal Bond ETF.
And then all of the equities exposure
is through the Vanguard ETFs.
So that's another area
you can get into here
is just using this prebuilt portfolios
based on your risk tolerance.
And then another thing
I love about M1 Finance
is that they offer retirement accounts.
Again, commission-free, fee-free
with a minimum of just 500 bucks.
So if you want to do like the
Roth IRA or traditional IRA,
you can do so through M1 Finance,
and this is one of the
coolest things they offer,
in my opinion, is the
target date retirement funds
where basically what you would do is this.
Let's say, I'm opening up a Roth IRA.
I'm 24 years old right now
so I'm expecting to
retire in 40 years, okay?
So I would pick a retirement date of 2060
which is literally what
you do with this drop down.
And then you decide you want aggressive,
conservative, or moderate.
So let's just say I go
right in the middle.
Well, there you go.
This is a portfolio designed
for a 2060 retirement
and as I get closer to retirement,
it's going to change the allocation here
to become more conservative.
So this is like the definition
of a set it and forget it portfolio.
If scroll down here,
it'll tell us more about this portfolio,
why these assets were chosen, and again,
it is basically all Vanguard ETFs.
There's one in here from Invesco.
I'm not familiar with
this fund, but again,
it's a very diversified
exposure to different ETFs
and it's going to change as I get older.
So again, you just can't
get any simpler than this.
Investing with a target
date retirement fund
that's gonna reallocate as you go.
You dollar cost average,
you can automatically contribute
money every single month,
and then, as you get closer to retirement,
it's gonna reallocate that asset blend
to become more conservative.
So these are the expert portfolios guys.
There's also other ones you can get into.
There's hedge fund followers,
income earners, other strategies.
I mean, if you wanna do
invest in cannabis stocks
or all kinds of just random stuff in here.
This is a video about ETFs
so we're not gonna get
into these other portfolios
but I just want you to know
that there's many different
options available here to you
relating to M1 Finance.
Now, that being said,
let's say, you know what,
you wanna build your own
portfolio from scratch.
Well, you can do that.
You can go right here to Funds
and you can select the funds
like here we go, VTI, VOO, ones
we've already talked about,
and you can construct your
own portfolio from scratch.
So again, if you want to do
something like I've done here
where you have a portion of your money
in the Vanguard 500 ETF, and you have more
some individual stocks, you
have the flexibility to do that.
And then, basically the
way this would work,
so if I were to put more
money into this portfolio,
it would invest it across my portfolio
based on my target allocations here.
So if I put 500 bucks into this portfolio,
it's gonna put most of it
in the Vanguard 500 ETF
and the rest of it across
these three different stocks.
So you could build your own portfolio
of Vanguard ETFs, only ETFs.
You could also include individual stocks.
You could also do an ETF portfolio
and an individual stock
portfolio to compare the two
or if you just wanna be as
passive as possible with it,
take advantage of these expert pies.
But there's no other brokerage out there
that I've come across that
offers this type of guidance
and these expert portfolios,
commission-free, fee-free.
So that's why I'm just so comfortable
with recommending them and
bringing them to your attention
because they are honestly
the best brokerage out there
that I found for these specific-use cases.
But anyways guys, that is
gonna wrap up this video.
That is ETFs in a nutshell
and if there's anything
I didn't cover and you have any questions,
drop me a comment down below,
I'll do my best to answer
them, and like I said,
if you do wanna explore M1
Finance a little bit more,
or click around on the Vanguard website,
I have links for everything
down in the description below,
and I certainly do appreciate
your use of the affiliate link
if you think you wanna
sign up for M1 Finance.
It just helps me out a
lot and helps support me
and allows we to make more
videos just like this one.
But thanks so much for watching guys.
I hope you enjoyed it and I
will see you in the next video.
