how index funds can make you a millionaire

What Is An Index Fund And How Does It Work?

What Is An Index Fund

In this post you will learn what an index fund is. Previously we have wrote a post about Mutual Funds vs ETFs – the Pros & Cons. An Index Fund can be either a Mutual Fund or ETF (exchange traded fund). An index fund refers to a fund with strategy of investing in index.

Index funds were invented by Jack Bogle, who was also the founder of the Vanguard Group. An index fund is a mutual fund or exchange-traded fund (ETF) that tracks or matches the components of a financial market index. To put it simply, an index fund is a portfolio of stocks or bonds that attempts to replicate the composition and performance of a financial market index.

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How Does Index Fund Work

Index funds have lower fees than actively managed funds and are a great passive income strategy. 

A good example of an index fund is the S&P 500 based fund. The S&P 500 index is a benchmark measure of annual returns that includes around 500 of America’s largest publicly traded companies. When investors refer to “the market,” they are referring to the S&P 500.

Another type of index fund to consider is a thematic fund.

Thematic funds are a type of index fund with a mandate to invest in one or more specific sectors or themes. Some funds focus on one or two main industries, while others have a broad theme that spans several industries. One of the main advantages of a thematic fund is that higher returns on a focused or concentrated portfolio are possible. 

Good example of a thematic fund is an index fund that invest in mega trend like Digitalisation.

How To Become A Millionaire With Index Funds

If you start investing 300 $ monthly to an average index fund. You will be a millionaire by age of 65. If you don’t believe us check out it yourself. You can try this compound interest calculator with previous numbers and 7% interest rate.

Investing in index funds is one of the most easiest ways to become a millionaire. All it takes is time, consistency and 300 $ per month. Check out our video of “Are Index Funds the Easiest Way to Become a Millionaire” to learn more.

Conclusion

Better performance results from lower costs, so choose an index fund if you’re looking to add diversity and increase your income portfolio.

You may be able to get higher profits by finding right profitable individual companies and buy their stocks. However, it requires a lot of skills and active longterm effort. It is very hard to beat the market. Historically index funds have provided ~7% profit in the long run. It means that an index fund is an excellent option for investing if you don’t want to spend all your spare time observing the market.

What are your thoughts on index funds? Do you have the S&P 500 or a thematic fund as part of your investment portfolio? Tell us in the comments section below. We’d love to hear why you have or don’t have these funds as part of your portfolio.

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