The Index Fund (ETF): A Road to Riches

Read below to understand how index funds are contributing to massive amounts of wealth for individual investors.

December 01, 2024

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Among the various propositions offered to you, if you invested in a very low cost index fund — where you don’t put the money in at one time, but average in over 10 years — you’ll do better than 90% of people who start investing at the same time. - Warren Buffet

Ever wonder why people often invest in funds? It’s because they offer a variety of ways to get your feet wet with investing and allow you to diversify your investments. In return, they offer anywhere from 10-20% in gains per year. Below we’ve summarized some points which may help you understand:

Low-Cost Diversification
Index funds track a specific market index (e.g., the S&P 500), offering broad exposure to many companies at once, which reduces individual stock risk. They typically have lower fees compared to actively managed funds.

Passive Investing
Index funds are "passive" investments, meaning they aim to replicate the performance of an index rather than outperform it. This makes them a simple and hands-off investment option for long-term growth.

Consistent Market Exposure
By investing in an index fund, you get consistent exposure to the overall market's performance, rather than trying to pick individual stocks. This helps you ride out market ups and downs over time.

Historically Strong Returns
Over long periods, index funds have historically provided solid returns, often outperforming actively managed funds after accounting for fees and expenses.

Ideal for Long-Term Investors
Index funds are well-suited for long-term investors who want to build wealth steadily, without needing to actively manage or time the market. They benefit from the overall growth of the market over time.

Which funds should you consider investing in?

Below we have summarized a select group of index funds which remain popular amongst investors:

  • Vanguard S&P 500 ETF (VOO)

  • SPDR S&P 500 ETF Trust (SPY)

  • Schwab U.S. Large-Cap ETF (SCHX)

  • iShares Core U.S. Total Market ETF (ITOT)

  • Vanguard Total Stock Market ETF (VTI)

Over a 10-year period the funds above have averaged an annual return of 10-11%. More surprisingly, in the last five years these funds have generated up to 91% in returns.