Top 5 Index Funds for 2022! (I invest in all of these!)

index funds are some of the most popular investments and for good reason according to some research the more expensive alternative actively managed funds failed to beat the performance of an index fund 92 to 95 of the time why would you pay 10 or 20 times the fees to get worse performance you wouldn't that's why you're here watching this video now let's talk about what index funds are how when and where to invest in them and of course what my top picks are for index funds right now what are index funds well for the sake of this video i'll be talking about index funds and some etfs interchangeably but in any case what i mean is a single investment that groups together hundreds or thousands of companies all for you so you buy one thing and you're investing in all those other things the funds are grouped based on whatever criteria people want sometimes it's based on geography or the size of the business sometimes it's based on what kind of business the company is in like tech or financial services or whatever else and because they're so popular nowadays you can kind of find an index fund based around whatever you want there's a lot of options so why should you invest in index funds in general the beauty of index funds is that they do that tricky work of picking companies for you the best mix of investments for most people is something that makes a good profit but also isn't too too risky if you make 40 profits this year but lose 80 of your money next year you've lost what's the point my goal is to invest a little bit like the famous investor charlie munger who is warren buffett's partner and make as much profit as possible without losing money or with losing as little money as possible index funds do that by giving you a teeny tiny bit of hundreds or thousands of different companies and that way you get the benefit of the companies that make a solid profit or grow and you won't be hurt too bad by the few that absolutely fail or have like really terrible years the other major benefit to these is that they're typically extremely inexpensive to own when it comes to fees for each of the five index funds that i've chosen as my top five i'll talk specifically about the expense ratio and that's the percentage that you're charged to invest in that fund these are way smaller numbers than paying an investment professional for choosing investments for you no more of that that difference in fees is like the difference between paying 180 bucks for new airpods or paying 4 500 for the same airpods why would you do that that's so silly so how do you invest in index funds is this some special thing do i have to use a particular service what does this look like index funds are as easy to invest in as basically any other investment you open up the investment app or service you search for the fund that you're looking for and you hit buy no special instructions needed that being said that process in and of itself can still seem pretty confusing to people especially if you haven't done it a lot so let me know in a comment if you'd like to see any specific walkthrough of an investing service in the future when should we be investing in index funds people like to talk about the stock market in very time specific ways like it's a good time to invest because we're coming out of a pandemic business is good so stocks are going to go up or oh it's a bad time to invest because ports are jammed up we can't get enough products in here there's a labor shortage it's a bad time to invest like no matter what you can kind of put your own spin on it based on your opinion and your news cycle for me my own personal opinion is we invest on a consistent schedule when we get paid we invest period every time no question about it i legally and morally can't tell you when you should be investing but you can take what i do and what i've said into consideration and make your own choice where can you invest in index funds like how do you actually go and find a place or a means to go and do this most brokerages have a lot of index funds options so you shouldn't be limited if you're already investing if you aren't investing yet or are looking to make a change my favorite platform overall these days is m1 finance it's slick it's free it's easy to use i made a two-year review about it check it out in the description plus i like the way that the overall design kind of encourages you to think more long term implicitly versus a service like robinhood or somebody else who really wants you to trade a lot for the most beginner of beginners i really like acorns because it is by far the simplest and least screw-up-able investing service i've ever seen you answer some questions about your life pick how much risk you like and send money in that's it and acorns only chooses etfs index funds to invest in so you're already doing that with acorns with m1 you'd have to go and pick specific ones that you want yourself now before we dive into the top five index funds that i've picked as my favorites we need to thank toggle for sponsoring today's video toggle is an investment tool unlike anything i've ever used before it's put together by people who literally came from the world of wall street with all the wild advanced tools and features that us normal people can't even access well time's changing and power's being democratized because toggle gives you access to a ton of information and advanced tools that used to be reserved for wall street pros they take all that massive amount of info and process it constantly with the help of ai historic trends and thousands of data points investing based on a hunch from your uncle lou or an instagram post is not very wise leveraging the power of thousands of indicators and the objectivity of toggle's algorithms is probably much wiser i also just found the service genuinely fascinating it's looking at so many factors of a company of the industry overall of big forces that are shifting the foundations of business that it can say things like hey the last time these things all happened this stock performed in this way then if you want to dive into a specific stock a bit more you can have all the data and news for it shown in one easy to navigate screen i've never seen nerd levels of stock research displayed this clearly and this simply before it kind of feels like the old way of researching your investments is like using a paper map you looked up some info on the company learned about what it did made some judgments based on your own experience and assumptions about what the future would hold and invested based on a very basic kind of assessment just like in 2009 when i drove across the country with four friends in a rented dodge charger to rock climb and eat the best southern food we could find it worked we got there but it wasn't particularly efficient or pretty but it was all we knew since none of us had smartphones nowadays you just toss your trip or destination into google maps or waze and have an absurd amount of processing on your side it's giving you live updates on traffic your eta waypoints along the way that you might need or want it's letting you see whether that coffee shop on the next exit is a legit place or if they just dispense some pre-made nasty latte substance out of a big plastic bag then when an accident happens it actually gives you a couple of options on how to route around the slowdown toggle is just like that for investing research once you cross over these superior tools you really don't want to go back check out the link in the description to learn more and thank you to toggle for sponsoring today's video let's get into these top five index funds now the format for these will be i'll tell you the name i'll tell you what it is what it's made up of what the top holdings are historic returns reasons for being in the top five and the expense ratio the first one is vti the vanguard total stock market index fund vti is made to track the entire us stock market this is the granddaddy index fund it's passively managed so it's not charging you a bunch of fees there's 3 9880 total stocks and the top 10 companies are largely tech so they have over 24 of the total holdings of vti because those companies are just that big those are apple microsoft alphabet amazon facebook tesla nvidia berkshire hathaway jpmorgan chase and johnson and johnson the historic returns have been really good the last five years it's averaged 16.8 percent the last 10 years it's averaged 16.6 and since inception back in 2001 it's averaged 8.7 percent so very good returns the expense ratio aka fees that i mentioned before is .03 super super low and the reason vti's in the top five is it's the entire stock market in one easy investment there is literally no easier and potentially more logical way to invest than a fund like this one there's actually a number of different funds that track the entire u.s stock market this one is the one that's put together by vanguard but if you pick a different one that's by a different company that still has a really low expense ratio and it attracts the whole market then you're good either way you're good you don't have to use vti necessarily if i could only invest in one thing for the rest of my life it would be vti the next index fund is called esgv that's vanguard's esg u.s stock market index fund this investment is made up of a bunch of companies that have been picked specifically because they meet high standards around treating people well and not being involved in certain industries think of it as being similar to the last investment but cherry picking out only the most moral and upstanding companies there's specific criteria that each company has to meet and get through as kind of a screen to be included in this and part of that is excluding stocks of certain companies in these industries adult entertainment alcohol tobacco weapons fossil fuels gambling and nuclear power i'm not personally really against nuclear power especially these new ones that can like fail passively and safely but i don't get to necessarily pick how these funds are made up so here we go they also exclude stocks of certain companies that don't meet standards of un global compact principles and companies that don't meet certain diversity criteria so it doesn't mean that these companies are perfect it doesn't mean that all they do is altruistic it just means that they meet some of these good standards the top holding of this fund is apple microsoft alphabet amazon facebook tesla nvidia jpmorgan chase united health group and visa and this is a more recent fund so there isn't a five or a 10-year historical return yet it only started september of 2018 and since then the return has been 18.2 percent which is awesome the expense ratio is 0.12 so still very low and the reason it's in the top five as small as our investments ourselves that we're making like in my household might feel compared to the millions and billions of dollars that are thrown around by everybody else i prefer to do at least some investing with moral intent yes i want to get rich and someday drive another porsche because i just got to drive a couple of really awesome ones i would love to have that experience again yes i want to retire or at least have the ability to be work optional before i'm 50 but if doing all of that means funding the efforts of companies that treat people in overtly bad or corrupt or potentially damaging ways i'd rather be less rich like that's fine we can still invest and we can still be successful even if that potentially means less rich this kind of fund makes more ethical investing a lot easier than i knew it could be whenever i first started investing i didn't think that was even a concept actually i didn't know that was a thing that you could shoot for let alone be able to evaluate companies plus the fund is doing really well overall and i'm not worried about missing out on returns from weapons or tobacco companies or something else the next fund is vug the vanguard growth etf this is an index fund that compiles large cap growth companies and what that means in normal person speak is big companies whose goal is to grow the top holdings of this fund are a very similar crowd you've heard these names before apple microsoft alphabet amazon facebook tesla nvidia visa home depot and paypal very common names the historical returns have been pretty epic the last five years 22.1 percent the last 10 years 19.3 and since inception in 2004 11.6 the expense ratio is incredibly low 0.04 so just barely more than vti almost free and the reason it's in the top 10. for me and what i'm looking for whenever i'm investing it's not particularly anything other than high growth right now as i'm saving and investing money i'm wanting it to grow and get to where the total dollar figure i guess you could say is at a certain point where we can retire so right now we need growth then when we can retire i still want growth the more it grows the more we can safely withdraw or the better we can sleep at night so for me growth is the goal and this is an easy way for me to access high growth potential companies in one easy to reach form i don't have a massive amount of money here but the amount that i have invested has done really well and it's fun to kind of mix it up a little bit outside of the behemoth of vti which is probably our single largest holding right now another way i like to mix it up is with this next index fund and that's vxus the vanguard total international stock etf this one is basically the world stock market of everything except for what's in the united states so it's like everything but vti here's a little handy map showing the region allocation 25 in emerging markets 40 in europe 27 in the pacific market 0.4 in the middle east 6.8 in north america and 0.1 other there's 7 621 total stocks can you imagine putting this together yourself that would take you forever forget that and vanguard site says that it's higher risk than the previous ones which kind of makes sense to me because historically the us has been pretty steady but it's okay to mix up the risk too the top holdings for this one are obviously very different than any of the previous ones because they're not interchangeable they're not they're not into mixing companies at all here the top one is taiwan semiconductor manufacturing which is really a surprise i did not know that i didn't know that it was a top company in this fund and it's surprising to me and kind of interesting because they just bought a massive piece of land here in arizona to build this insanely huge campus on so it's really fascinating like you could google it and type in taiwan semiconductor arizona they're gonna build an absolutely huge deal it's it's nuts the other biggest holdings are 10 cent holdings samsung electronics nestle asml holdings alibaba group roche holdings toyota motor corp novartis a g ln mh moat hennessy louis vuitton se wow what a name and the historic returns have been pretty good overall the last five years it's gotten nine percent over the last 10 it's averaged 7.9 percent and since inception in 2011 5.23 the expense ratio is still really low at .08 percent and the reason it's in the top five as powerful as the returns are in u.s companies especially since 2008 we can't assume that the train will just chug along perfectly for forever the fact is that in the long long term more diversification is better for us that means spreading things out a bit to include other countries and other markets just in case things don't go well here in the states for a while if things somehow did go well here for forever it would just mean that you gave up a little bit of profit but if things don't go perfectly here or if other countries suddenly do really well it means you gain some in any case it's a layer of safety keeping all your eggs from being in one country's basket the fifth index fund before i get into my honorable mentions is bnd the vanguard total bond market index fund etf shares it's made up of the u.s bond market so these aren't company stocks it's not like nvidia and apple and all those people these are bonds it's a whole different financial product these aren't inflation protected and tax exempt bonds they are other bonds besides that these are very very very low risk and they also have lower returns but typically a little bit higher dividend than most stocks on average so there's some balance out of there too this fund is made up of different kinds of bonds so it's 65 u.s government bonds 15.8 percent triple b bonds twelve percent a bonds and then triple a and double a bonds are the rest so that's just the bond rating like how good and reliable and worthwhile of a bond it is it's not really something that we need to get into for this video it's just telling you that it's a different mix of bonds and the historic return here is way less than the other ones which you'll notice so the last five years 2.93 over the last 10 years it's averaged 2.97 and since they started this fund in 2007 4.1 percent so way less than the stock market the expense ratio is super low almost as low as vti 0.035 the reason that it's in the top five you're probably really skeptical at this point if you've made it this far in the video because you're going why would you get less money why would you not just invest in all stocks bonds are the boring but necessary balance to have an overall investment portfolio that can withstand the ups and downs of long-term markets it's the peanut butter to the jelly it's the pru to the paul hollywood it's the balance it's not really that sexy to talk about wisdom and lessening your risk whenever we're talking about investing but to me the most exciting thing and the most sexy thing isn't jumping into whatever hot investment might make me a ton of money it's about what overall sets me up to succeed long term no matter what comes in the future some people increase the amount of bonds in their overall portfolio as they get older and for us i kind of doubt we'll ever be more than like 30 bonds unless something really big changes in the future but i can't predict that now and you can choose whatever level of risk you want whatever amount of bonds you want based on what you're comfortable with and what helps you sleep at night that's an important thing all right i know that the title of this video is top five index funds but i have a few honorable mentions just because they're super interesting to me this first one is called she she and it's a gender diversity index fund she in my experience anyway is really unique because it specifically targets companies that demonstrate greater gender diversity within senior leadership as compared to other companies that do similar kinds of business it's pretty well known by now that women are grossly underrepresented in leadership roles in big companies and so this is a really interesting opportunity it's made up of 193 companies that have all met the criteria and they include some names you've probably heard of like netflix disney square salesforce.com it's pretty awesome for investors who are optimistic about women in leadership the last honorable mention is vbk which is vanguard small cap growth etf so in contrast to those same like top i don't know 15 to 25 mega companies that seem to be the top holdings in most indexes this is specifically targeting small companies it's gotten good returns in recent years the last five years it's averaged 17 since it started in 2004 it's averaged over 10 percent and the top holdings are typically names that i don't think people have heard of like charles river laboratories international and avanti and biotech technique i mean i could stop reading these because i've never even heard of any of these and you probably haven't either and that's the point like we literally shouldn't have heard of these companies because they're so small in contrast to those giant ones and so if you wanted to be really balanced in what you're doing buying a fund like vbk gives you more exposure to these other smaller companies so you don't necessarily count on the amazons and the facebooks and the apples of the world to kind of carry your whole investment portfolio could be a good idea this is not investment advice but could be a good idea these are my top five index funds and i personally invest in all of them my goal is to make money while minimizing the likelihood that i lose it and i think that they're all set up to do that this is of course not me telling you to invest in any of these in particular because i don't give investing advice i'm just sharing my own thoughts and opinions because it's fun to talk about and to share our own ideas with each other you've watched till the end of the video and for fun i like to have a secret comments section for those of us that made it this far just something that's fun frivolous today the secret comment word is cactus there's no reason for that i just live in arizona we have cactuses i like the look of a saguaro looks cool so if you enjoyed the video or you learned something about index funds that you didn't know before include a cactus emoji or mention a cactus something cactus related perhaps a prickly pear jam sandwich you're eating right now prickly pear jam isn't that good i wish it was better if anyone knows of like a really good prickly pear jam or something let me know i've always been kind of disappointed anyway i'll keep an eye out for these comments because they are my favorite comments by far if you'd like to know more about a similar topic i'd recommend watching my reviews of different investing companies because i'll talk about why they're good to work with especially if you're interested in using index funds but you haven't really gotten started they can help you kind of sift through your options out there and figure out how you might like to invest the most i've linked some of them in my description and i think it's worth checking out also if you're interested in seeing more behind the scenes on upcoming videos or my ultra marathon training holy cow it's coming up so fast december 4th i'm running an ultra marathon i'm not sure i'm ready but if you want to see more of that kind of stuff follow me on instagram that's where the pretty pictures of desert sunrises on mountain trails get posted along with other good stuff pretty much daily thanks see you later

Channel: Brendan Evan

Views: 29,764

Keywords: Investing, index funds, best index funds, best index funds 2021, best index funds 2022, top 5 index funds, how to invest in index funds

Id: AOBh0btXdiw

Length: 18min 54sec (1134 seconds)

Published: Tue Nov 02 2021