If you've been wondering which index fund
is the best for growth and simplicity, then stick around to the end of the video
because I'm going to share my opinion on which fund I actually invest in.
This fund is talked a lot about
in the fire community, financial independence retire early,
but I feel like a lot of people don't really understand exactly what they're
investing in when they invest in this index fund.
And we should know what we're investing in and why we are investing in it.
I am Tiffany Thomas,
with Wealthy Tiffany Dotcom and I have invested in this certain index fund plus
real estate to help me become financially free at age thirty eight.
So before we dive in, put in the comments,
if you can guess which index fund you think I'm going to mention.
And don't forget hit the like button and the subscribe button.
All right, my choice for the best index fund overall
for growth and simplicity is the Vanguard Total Stock Market Index Fund.
And I'm going to share the main reasons
why I've chosen this fund and why I haven't chosen some of the other funds.
The first reason is because it's very easy to invest in this fund.
You can set it and forget it pretty much.
And if you don't know what an index fund is, it essentially tracks something else.
So the Vanguard Total Stock Market Index Fund is tracking the total stock market.
Essentially, there are about thirty five hundred stocks inside of this one fund.
So when you purchase one share of the total stock market index fund,
you're purchasing over thirty five hundred stocks.
But the catch is you're not purchasing one share of each individual stock when you
invest in the Vanguard Total Stock Market Index fund.
And I'm going to abbreviate it VTSAX
x because that is the ticker symbol for this index fund.
So when you're investing in VTSAX,
you are essentially investing in the total stock market, but you're not investing
equally for each stock that is in the index fund.
So let me show you what I'm talking about.
I went to Vanguard's website and pulled up the total stock market index fund.
And if you scroll to the very bottom,
you can see exactly which stocks are being held within the fund.
And you can see that they are weighted for each sector that they're invested in.
So you can see over here on the left all of these different sectors.
And the highest one is the technology
sector is twenty seven point eight percent of this index fund.
And you can see the top 10 holdings inside the index fund.
So you have Apple, Microsoft, Amazon,
Alphabet, which is Google, Facebook and so on.
And it's weighted.
So you actually are not investing equally in each stock.
This means that the S&P five hundred index fund that you could also invest in is very
similar to this total stock market fund because of the way it is weighted.
And I went ahead and pulled up the Vanguard five hundred index fund.
So it tracks the S&P five hundred.
And if you scroll to the bottom again, you can see that this one also has
twenty eight point seven percent invested in the information technology sector.
And you can see the top ten holdings,
Apple, Microsoft, Amazon, Alphabet, which is Google, Facebook and then so on.
So it's going to have a very similar
return as the Vanguard Total Stock Market Index Fund.
So when investing in a total stock market
index fund, don't make the mistake of thinking that you have a fully
diversified mix of large cap stocks, mid-cap stocks and small cap stocks
in one fund, since these funds are cap
weighted, which I just showed you, a large percentage of the holdings are
large cap stocks making the performance similar to an S&P five hundred index fund.
I know a lot of people like to invest
in the S&P five hundred index fund and that is totally fine.
I just like having that a little bit more
diversification with the Vanguard Total Stock Market Index fund.
But I just wanted to point out
that the S&P five hundred index fund is still a good investment and you'll get
really close returns to the total stock market index funds.
All right.
Another reason that I love this fund is because it has a really low expense ratio.
And I have done a video before about how much fees are really costing you.
So check that video out.
I will leave a link above and below in the description so you can really
understand how much you're really paying in fees and why you want to keep them as
low as possible, especially our expense ratio.
So with the Vanguard Total Stock Market Index fund, it only has an expense ratio
of point zero four percent, which is super, super low.
And if you're thinking, oh, Tiffany, I have heard that Fidelity has zero
percent expense ratios for some of their index funds.
You are correct.
But this brings us to the next couple of points.
We also want to keep our investments tax
efficient, especially if we are investing in a brokerage account where we will have
to pay taxes when certain investments are sold.
Vanguard's funds have been so much more
tax efficient that they completely wipe out the expense ratio.
Savings of fidelity for there is zero percent expense ratios.
And here is some quick math to show how much the added taxes skew the true expense
ratio of Fidelities Zero funds the zero funds distributed thirty two
cents per share of capital gains last year.
Vanguard distributed zero since the year two thousand.
So you can see how tax efficient Vanguard really is and say you have ten thousand
dollars to invest and the average share price was seventy dollars last year.
You'd own one hundred and forty two point
eight six shares, meaning you'd receive forty five dollars and seventy one sense
of capital gains distributions, all else being equal.
You'd pay taxes on those distributions at your capital gains tax rate,
which would be 15 percent for the majority of people.
That's six dollars and eighty six cents
of capital gains taxes owed relative to your ten thousand dollar investment.
That's a point zero six eight percent.
In other words, fidelity is a true expense ratio is about point zero seven percent
compared to Vanguard's zero point zero four percent.
And if that was at all confusing,
just realize that you need to have tax efficient investments.
And when something is sold,
so when they switch out a certain stock from that index fund,
then you're going to pay a capital gains tax on that investment that was sold.
So you want to be paying the least amount in taxes.
But since it looks like Fidelity has you paying more in taxes,
it averages out that essentially you're paying a point zero seven percent expense
ratio versus Vanguard zero point zero four percent.
So in essence, it's not really a zero
percent index fund when you're comparing it to Vanguard Fund with a point zero four
percent and zero dollars in that capital gains tax.
And I understand if you are holding your investments in a retirement account like
an IRA or a 401k, then you're not going to continue to pay that capital gains tax
because your taxes are deferred, depending on which retirement account
you're invested in or you've already paid taxes on that money.
But for those of us who are investing
in a simple brokerage account, we are going to pay taxes on any of those cells.
And another point that I want to bring up is that Vanguard has been in business
for a really long time, so they are a very stable company.
John Bogle founded Vanguard in nineteen
seventy five with a unique ownership structure rather than being publicly owned
or being owned by a small group of partners.
The company was owned by its mutual funds, which in turn were owned by the people
purchasing shares in those mutual funds, which is that ownership structure was
purposely chosen so that business profits could be passed on to regular investors
like us in the form of lower fees rather than going to third party shareholders.
So you can see that Vanguard has the structure set up that they are not
incentivized to raise their fees to raise their expense ratios.
And since fidelity is not set up like
Vanguard, they don't have that same ownership structure.
They could increase that expense ratio
from zero to whatever they wanted to because that's how fidelity is set up.
They want to make more money and they do
that by increasing their fees, increasing their expense ratios.
And I'm not saying that is going to happen.
I'm just saying it could happen.
So I prefer to stick with Vanguard because
they are really focused on their customers, on you.
The next reason and I feel like this one
is a really important reason for most people and it should be it is performance.
And the Vanguard Total Stock Market Index Fund has a really great performance rate.
So I pulled up the Vanguard Total Stock Market Index fund again.
And we are going to click on that price and performance.
And then we are.
Going to scroll down and we can see what the performance has been
for the past 10 years, so you can see that the one year
performance was fourteen point nine nine percent.
Their three year performance was eleven point six four percent.
Five year is thirteen point six eight percent.
And then 10 year is thirteen point four eight percent.
And you can see it since it was started, it's been seven point one eight percent.
So these are really good returns for this
index fund because it is so simple to invest in.
You definitely won't see these returns by leaving your money in a savings account.
You get to invest in one fund and have
access to a whole bunch of different stocks.
And you can just continue to invest in it over time.
And you can also automate this.
Vanguard has it set up so you can do auto transfers if you wanted to transfer
directly from your checking or your savings account or even from your
paycheck, if your employer allows it, then you can just do an automatic transfer
and have it go directly into VTSAX, which I think is really smart,
because if people are transferring their money to their retirement account or their
brokerage account, sometimes they forget to actually put that money
into an investment and it just sits there in their settlement fund account,
which is earning probably maybe zero percent or barely above zero percent.
But with the Vanguard Total Stock Market
Index fund, you can just do an auto transfer directly into that fund,
whether it's in your retirement account or your brokerage account.
So it makes it really, really simple to invest your money.
And you don't have to worry about one
stock tanking and losing all of your investments because there's about thirty
five hundred stocks that you are invested in.
And of course, it is risky because it is all in stocks.
So it's going to go up and down over time.
But as I've talked about before, the stock market continues to rise over time.
So it'll go up and down, up and down,
up and down, but it'll go further up over time.
Another great reason that I like this fund is, yes, you have to have three thousand
dollars to get started investing in this fund.
But there is an ETF version, an exchange traded fund version of this index fund.
So you can get started investing in this
fund, the ETF version of it, for about one hundred and seventy three
dollars, which is just one share of the Vanguard total stock market ETF.
And if you wanted to,
once you have three thousand dollars already invested,
you could switch that over to VTSAX and then set up your auto transfers.
The downside of investing in an ETF is
they do not allow auto transfers, but it doesn't mean that you can't log
into your account and make the transfer yourself.
And just as a side note, I was doing a lot of research to figure
out if this really was the best investment.
So I looked at quite a few different funds and I looked at the return over the years
and what their expense ratio was, because some funds seem to have a really
high return, but they also have that high expense ratio associated with them.
So you really want to be careful when you are comparing different funds,
make sure you are comparing that expense ratio with the performance of the fund.
And I thought I had found a fund
that could be better, but it's really hard to to determine
that because it's just based on past performance.
But you don't really know what's going to happen in the future.
You think it will be similar, but it may not be so.
I personally like sticking with a fund
that still gets really good returns and has a really low expense ratio.
I feel like that is a win win.
And even if I do miss out on a little bit extra return with a fund that has a higher
expense ratio with a higher performance, I'm OK with that because I know over time
the total stock market will continue to rise.
And by investing in this Vanguard total
stock market index fund, I know that my investments will continue
to rise and I can keep my expenses really low, that expense ratio really low.
But I still feel like I'm getting enough
reward with my risk because I keep that risk low by having a really low
expense ratio and can still get the reward that higher return.
Tell me in the comments below what your
favorite index fund is and if you found this video helpful, please note that like
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Thanks so much for watching. I'll see you in the next video.