Index Investing | Phil Town

alright guys I'm Phil town from rule 1 investing today we'll be talking about whether or not index investing is a good idea [Music] hey there before we dive into today's video I wanted to take a minute to remind you that as a big thank you for hitting 250,000 subscribers on my channel recently I'm hosting a huge giveaway and it's happening right now to find out how you can win $1,500 cash and other great prizes just check out the description after this video and click the link for my 250,000 Youtube subscriber giveaway woo now back to the video let me preface the rest of this video by saying this investing in a carefully selected individual company is by far the most effective way to significantly grow your wealth no question it's also the fastest way to do it also no question if you're soon approaching retirement then the things I'm going to talk about in this video those are not for you you're going to need to do a lot more aggressive things so look I'm gonna be them first to tell you that investing in individual companies is a skill set it takes time to learn that skill set once you've learned it the amount of tickets to you know continue to invest well I think you could gather from Charlie Munger last year telling everybody at the Berkshire meeting who was asking when's Warren Buffett gonna retire that Warren had been retired as far as Charlie knows his entire life in fact we know one guy who made about 28 percent a year for 20 years while working full time as an instructor as a mathematics professor at University of California Irvine that's ed Thorpe so there are a lot of examples of people doing extremely well with this once they know how to do it with very very minor amount of time that's put in but it is absolutely and I'll be the first to tell you something that requires learning it's not something that you just can just go do so without spending the time needed to learn how to do this how to find wonderful companies and research them properly I think investing in individual companies could be a really serious gamble and you we shouldn't do it so does that mean that if you don't have the time to really learn how to invest properly then you can't invest at all no absolutely you can invest in you you can invest it takes very little time it takes very little knowledge and you should probably do it if you're not gonna learn how to invest properly and that form of investing is called index investing very simple to do and I would say an awful lot of people do it now there are some issues there then we'll talk about that in a second so let me break down what it means to invest in an index now basically an index is a sample of companies that are meant to be representative of the overall market or specific industry within that market so for example the Dow Jones Industrial Index is an index comprised of the 30 most significant stocks in the market the S&P 500 that is an index comprised of the 500 largest companies in the market right so there's different kinds of indexes for different kinds of things index investing simply means spreading your money across one of those index typically done by purchasing what's called an exchange-traded fund an ETF that's designed to track a specific index now given that most major indexes are used to track the overall movement of the market indexes perform about as well as the overall market does in the very long term in other words they tend to yield an average return of about 7% a year over the long run well this isn't as high as the returns you can achieve by successfully picking an individual company by doing the right research it is a respectable return and that's considerably higher than the interest rates of a savings account or the interest returns on bonds so when you and invest in an index you're essentially betting your money on the future of the I guess country or industry that at index is covering for example the indexes I just talked about are about the future of America so if you put your money in one of those indexes you're betting that the future of America will be positive it'll be in the direction of what it was in the past if you're confident that the American economy will keep growing you're probably gonna come out okay by putting your money in an index the problem here is if you put your money into an index well by index I mean an exchange-traded fund that matches the index the market could be down for a significant period of time unfortunately particularly now so if you're invested in an index that means your portfolio will be down whatever the index does for that period of time ultimately if America is doing well then things will come back up again but during that period of time it's called dead money you're not making a return on your money if you have to sell out at that point in time you're gonna lose money now that's another plus of investing in individual companies individual companies you can match against any kind of a market up down sideways doesn't matter you're really just looking for great companies that you're gonna be able to buy really cheap now the really good ones they're really great companies they tend to perform even in times of recession I bought wonderful companies back in 2009 like Chipotle Mexican Grill that did fantastic during the recession even though the economy wasn't doing well that company was killing it so although you're making less money with index investing on a percentage basis there's one perk that a lot of people like index investing is completely passive and absolutely easy there's no requirement to research individual companies you don't even have to understand anything in the index that you're buying all you got to do is just buy it it just buy it right it takes time and dedication to learn rule one principles and invest the rule one way and that other way is just brain-dead easy so at this point I'd have to ask you are you really serious about investing if you're not really serious about investing well then you know you should be doing an index you shouldn't be out there buying individual businesses unless you know what you're doing because then you're just hoping to make a buck that's just called something else that's not investing it's called gambling if you aren't going to take the time to understand and invest in individual companies investing in an index via an exchange-traded fund is probably the next thing to do even Warren Buffett will tell you that now this is important index investing may be passive but it's not that easy through index investing to reach true financial freedom there's the catch if you have forty or more years to save for retirement and you're making a decent amount of money that you can invest over that time period a seven percent rate of return over time can indeed be enough for you to reach your savings target and have a fabulous retirement have all the freedom in the world financially yes if you've got forty years the problem is you guys most people don't begin taking their retirement savings seriously until they've got about fifteen years before they retire there's all these other things going on in that first part of their lives and then with only fifteen years to go a 7% return won't get you there fast enough that unfortunately is a lesson many baby boomers are learning right now and I hope you guys don't have to learn it for those who don't have forty years to weight index investing is not likely to provide you enough of a return and investing in individual companies is going to be the only really viable strategy for you which is why we do all these videos for you guys look if however you're starting young you're twenty three twenty five and you're looking for a passive approach to investing that requires minimal knowledge totally easy to do index investing through exchange-traded funds might just be the ticket for you although I gotta tell you rule and investing is still better you're going to get much richer you'll have more fun doing it and you definitely should take the time to learn that but many of you won't in that case go do indexes and it's not a bad thing now I'd love to hear from you guys have you thought about index investing do you do index investing leave a comment below with your answer and I'll be sure to follow up with you and thanks for watching now go play if you enjoyed this video and you feel it was valuable in teaching you more about index investing hit the like button and please share this video with your friends and if you want more investing content subscribe to my channel and don't forget to click the button on the screen for a free gift you guys thanks again for watching

Channel: Rule #1 Investing

Views: 51,670

Keywords: phil town, rule one investing, index investing, investing in indexes, index fund, index funds, investing for beginners, index fund vs mutual fund, how to invest money, investing in stocks, how to invest in stocks, rule #1, investing, how to invest, learn to invest, investing 101, stock market, 250k subscribers

Id: TesA5zg-IE0

Length: 9min 13sec (553 seconds)

Published: Thu May 16 2019