So you've been working hard to save and is now looking to invest your
hard earned money. But where to start? You ask your co-workers and they talk
your ears off about cryptocurrency. You asked your brother in law
and he says investing is tech companies is sure way to becoming a billionaire
You ask your mom and she says, why would you go and do a silly thing like that?
It's overwhelming and frustrating. You worked hard to save your money, but don't know where
to start when it comes to investing. What if I was to tell you that there
is just one investment you need to know that'll solve your dilemma.
Hi, my name is Tae from Financial Tortoise, a channel dedicated to creating Personal
Finance content for the Sandwich Generation. Investing feels intimating to most people.
It conjures up images of complex financial models and jargons that normal people don’t understand.
Enter your solution – Vanguard’s VTSAX! When I started in my investing journey,
I was overwhelmed by all the options out there – How do I find the winning stock?
Can I research the best companies to invest in? What is a mutual fund
and why are there so many of them?? In this video, I want to share with you
our one stop investment – the Vanguard’s VTSAX Index Fund that has helped us reach financial
security and continues to grow our net worth. Before we start, I've time stamped each section,
so if there's any part of the video that you'd like to skip, then don't worry it's all right
there in the description Let's get started
Who is Vanguard? If you’ve watched any of my other videos,
you know that I’m a big fan of Vanguard and their products. My two primary reasons are due
to the company’s incentive structure and their specialization in high quality index funds.
Mr. Jack Bogle founded Vanguard in 1975. When he started the company he created it with a
quite unique structure – a company that is client owned and operated at-cost.
What does this mean? Unique Company Structure – Most companies have
different stakeholders that they have to serve. If it is a publicly traded company,
it needs to serve its shareholders as well as the customers that it sells its products to.
If it is a private company, it needs to serve its owner as well as its customers. It must create
value to both groups. If things are going well, this is not a problem. Customers get the widget
they want at a good value and the shareholders get the profit they’ve been expecting.
However, when times are tough, we see the tension that this model can create. In the
case of investment companies, in order to create more profit for the owner or the shareholders,
we often see them passing those expenses to the customers with higher fees.
Vanguard on the other hand has a model where because the investors of funds (the customers)
are also the owners of Vanguard, everyone’s interest aligns perfectly.
Technically Vanguard is incentivized to provide value to only ONE group of people that plays
the role of both the customer and the owner. Pioneers of Index Fund – Vanguard is also the
pioneer of low cost index funds. In 1976, Jack Bogle launched the world’s first index fund,
the S&P index, and this concept of index fund has really taken a hold
of mainstream investing in the last few decades. For those of you hearing about index fund for the
first time, an index fund is an investment that basically tracks the stock market,
You might have heard of terms like S&P 500 or the Dow Jones Industrial Average.
Instead of trying to pick stocks and manage assets - the index simply tracks the stock market.
There is minimal human element involved, which also makes these
investment available at a very low cost. Index funds also perform extremely well
over time compared to actively managed funds regardless of which asset class it is in.
I have a video that explains why you want to avoid financial advisors and actively
managed funds that you can check out here. These days almost all major investment firms
offer some variation of index funds; Fidelity, Schwab, etc.
However given the aligned company incentive structure and the consistent low expense ratios,
Vanguard is still my number one investment firm.
What is VTSAX Index Fund? VTSAX is Vanguard’s Total Stock Market Index Fund.
Ok you are probably asking – What does that mean?? It may sound complicated but don’t
let fancy name intimidate you.
Just know that it is an index of every
publicly traded company in the United States. At the time of this video, there are approximately
3,700 companies being represented in this fund. In essence, by purchasing a share of VTSAX
you are essentially buying a piece of every publicly traded company in the US.
Ever heard of Apple, Amazon, Johnson & Johnson? If you purchase VTSAX, you are
essentially buying a piece of all these companies. Market, thus the Index Normally Goes Up – Since
the recession of 2009, the market has done fairly well. In the last 10 years, VTSAX has had
an average return of almost 15% annually! That means that if you had invested $1,000
ten years ago, it would have grown to over $4,000 from just the compounding growth alone
– 4x your original investment and you did nothing except invest in VTSAX.
The Fund is Self Cleansing – Because all companies are working hard to
create value for its shareholders, there is endless upward potential for the stocks
to go up. Who could have imagined Amazon or Facebook to have gotten as big as they have?
However, the lowest a company can go is $0. It can’t fall any further. When a company fails, it
will go bankrupt and disappear essentially making its stock price $0. But there are always hundreds
of new companies coming into take the reign. Sounds pretty awesome, don't you think?
How many of your friends can say they own a piece of every publicly traded company in the US
and are able to tap into the phenomenal growth of the stock market, to grow their wealth??
Is VTSAX Index Fund Better Than Buying Single Stocks?
The simple answer – YES. Jack Bogle, the founder of Vanguard
had a great quote about beating the market. “I’ve been in the business 61 years and I
can’t do it. I’ve never met anybody who can do it. I’ve never met anybody
who’s met anybody who can do it.” – Jack Bogle People naturally think they are smarter than
they actually are. I have a big problem in this area – and my wife has to put me in my place
daily. God bless her.
We think we can easily spot good companies from the bad ones.
We all have a friend, a relative or a neighbor that "knows" what the best investment is
“Oh my God, Tesla is the future! It’s no brainer you should buy Tesla stocks!”
But the reality is no one knows. The rising star today could become bankrupt tomorrow
and the struggling company today could become the industry standard in the future.
Anyone remember Blockbuster? Or how about Circuit City? And people forget that Apple actually went
through a pretty rough patch in the 90s. If you can’t pick winning stocks, the best
bet is to bet on the whole market. Buy VTSAX and hold them forever.
Is VTSAX Index Fund Better Than Actively Managed Mutual Funds?
Another simple answer – YES. When you read big newspapers or
magazines dedicated to financial advice, they oftentimes list the ‘top mutual funds,’ or ‘the
top performing mutual funds of the year.’ And if you read further, the article goes
onto explain how this amazing fund manager was able to produce ridiculous
returns on his or her fund year after year. However, what it forgets to mention is how
expensive these active managers are. And the way they pay for these expensive managers are
by charging the investor outrageous fees.
You can easily compare these
expenses by looking at the ‘expense ratio.’ Expense ratio is the annual fee that all
funds charge their shareholders for basic administrative and operating expenses.
The average expense ratio for actively managed mutual funds ranges anywhere from 0.5% to 1.0%.
Now compare that to VTSAX’s expense ratio. Stunning 0.04%!
That’s almost 10x less than the cheapest
actively managed mutual fund. Even when compared to other passively managed funds,
who’s average ratio is about 0.2%, VTSAX is still 4-5x cheaper.
When we consider the fees that these actively managed mutual funds charge, even if they
outperform the index by a few percentage points, the extra expense ratio wipes out any advantage.
In addition, I’m sure we’ve all seen tons of ads as regards to these actively managed
funds. But when was the last time you saw an ad for a low cost index fund.
I like to believe that Vanguard would rather keep the expense to its investors low. and not
waste its money on ads, while other companies are spending hard earned investor money on
promoting their funds to gain more business, and to fund their highly paid active managers.
Keep it simple and opt for the best passive index fund – VTSAX.
Now that you understand why VTSAX is the best investment vehicle out there,
go out there and get yourself some VTSAX and start growing your wealth!
If you’d like to learn more about investing, I highly encourage you to read JL Collins, the
Simple Path to Wealth. My favorite investing book. He goes more in depth about index funds and VTSAX,
and explains it so much better than I did in this video.
Thank you guys for watching. If you found value from this video,
please hit the like button, leave a comment and subscribe to the
channel so that you don't miss out on any of my other upcoming videos.
I firmly believe that being part of the Sandwich Generation doesn't have to mean financial stress.
With careful planning and preparation, we can thrive during this stage of life.
Help me spread the knowledge. Thank you again and I'll see you in my next video.