The best way to build wealth and achieve FIRE is to invest your money. The best way to invest your money is to index and chill!
Cash Is Not A Safe Investment
Despite what you may think, cash is not a safe investment. Each year the dollar loses about 3% of its buying power due to inflation. $1.00 today will be worth $0.97 cents next year, then $0.94 the next …
If your strategy to build wealth is to invest in cash, you probably need a new plan. Besides, cash is not an investment anyway. Investing is the act of spending money with the expectation of receiving more money in return, and while saving money is a good idea, it’s hardly safe and you certainly won’t get more cash in return. In fact, saving alone is a guaranteed way to lose money.
Stocks Are A Safer Investment
You’ve also probably heard that stocks are risky, but that’s an incomplete statement. Investing in individual stocks is what’s risky. Consider this: 88% of the Fortune 500 firms from 1955 are gone! Only 61 of those formerly “blue chip” firms are still on that list today.
That sounds brutal! So how can I say that the stock market is safer? Because of this: there is a limit to how much damage one company can do to the stock market, but there isn’t a ceiling on how much value one company can contribute.
Bad companies go away (Radio Shack) while solid companies stick around (Amazon, Microsoft, Apple), that’s why over time the stock market always goes up! Sure this upward march looks more like an EKG machine and less like an up-moving escalator, but the trend is very clear: up and to the right.
And the stock market is resilient as well! Over the past hundred years nothing has permanently sunk the U.S. stock market. Not:
- The Great Depression
- World War I
- World War II
- The Korean War
- A presidential assassination
- The Vietnam War
- A failed presidential assassination
- The War on Drugs
- The Gulf & Iraq Wars
- 9/11
- The War on Terror
- The Great Recession
- Saber rattling with North Korea
Some individual companies failed, but the market did not! Some years the market is up, some years it’s down. But over the long term, the up years far outweigh the down years.
Index And Chill
To rapidly build wealth you need to do more than just save your dollars – you need to put them to work someplace safe where they can grow and multiply. One of the safest ways to do this is by investing in the entire U.S. stock market rather than individual stocks.
To invest in the entire U.S. stock market you buy index funds. Every major investment firm offers a total stock market index. Two of the most popular are the Total Stock Market Index from Vanguard and the Total Market Index Fund from Fidelity. Both of these options have low fees and by purchasing one share of an index fund you’re essentially buying a piece of every single publicly traded company in America.
After you’ve bought your index fund, keep buying more. Make it your business to buy index funds then just sit back and watch your money making machine go to work for you. All you need to do is index and chill and watch your net worth climb up and to the right!
Chime in!
I try to keep my posts short and sweet, but love it when the conversation continues below in the comment section. What do you think of Index and Chill? Are you an index investor? Do you have individual stocks? What’s your investment strategy?
22 replies on “Index and Chill – The Safe and Easy Way to Invest in the Stock Market”
Brilliant – I am going to be using this tag line for newby investors in the future!!
haha, I love the phrase!
I like the idea of index and chill, but I also love the idea of living off of dividends rather than selling shares.
Dividend income is great and I definitely want to learn more about it. My index fund pays a small dividend, so for now I’ll just take that and be happy with it.
I have a mix of both in separate portfolios. Currently, the individual share portfolio is up over 17%!! I’m enjoying the ride.
However, I agree with you that indexing is far safer, hence my index funds portfolio is over 5 times the size of the other one.
Better to be safe than sorry…
17% is great – nice work! Individual stocks have the potential of the home run, but indexing almost guarantees that you’ll never strike out.
I’m not sure if it’s the best way, but index and chill is definitely the easiest way to build wealth. It really works and anyone can do it.
Real estate investing is probably better, but it also involve a lot more work and learning.
“Best” is subjective for sure. Real estate is also great, just a different ball game and, as you’ve pointed out, probably has a bigger learning curve.
I’m an index and chill guy all the way. Without any time-consuming research, I beat most of the financial gurus by buying VTSAX and taking what Mr. Market gives me. It couldn’t be simpler. And as you powerfully pointed out, Ty, it couldn’t be less riskier. Thank you, sir. Great post.
The return I get for the effort I put in is kinda ridiculous. So easy if you’re in it for the long haul.
I’ve made my fair share of money mistakes, but thankfully, none of them involved trying to beat the market by picking individual stocks. Indexing for the win!
One of these days I’ll get around to publishing my own money mistakes post … but it’ll be way longer than the 500 words I’m trying to stick to 😀
I feel like I’ve heard that term somewhere…xD
I know you’re not the history teacher but…
What does saber rattling mean? How did a failed attempt hurt stocks? Oh boy people must have really hated the president!
Hey Lily – I LOVE the phrase and first heard it from @jykimdds on twitter.
Saber rattling is the threat of military force by a country.
A failed presidential assassination on Regan cast a lot of fear and uncertainty across the country … both of which the market doesn’t like. Regan was a popular president, but the wacko that went after him did so to try and impress an actress (Jodi Foster I think?), not for political reasons. Crazy.
In every kind of investment few unavoidable risks are there and you must have to know this. About investment I will say keep some amount in the bank to cover your personal expenses, put a limited amount as your emergency fund into Treasuries, and then put a little bit as vacation fund. After that if you want to stick to investing your money on a long term basis, then investment in stock is the right option but with research.
Hey Elfried, there are risks for sure and investing in stock should be done for the long term, and only after you’ve got a bit of stability financially. But when you’re ready to put your cash to work – index and chill all the way!
Index and chill, that phrase could catch on! : ) I index a good portion of my portfolio, but I also hold shares in high quality, dividend paying blue chips. I think what people tend to miss is the importance of ensuring the proper asset allocation. It actually has a greater influence on an investors long term income than individual security selection.
On another note, I’m loving your new post format Ty. While concise, your content is pure gold!
Like most commenters so far, I too over-index on index funds. I’ve also got some individual stock (through my employer) and a couple of other assets, but most of my portfolio is indexed. In the near future I’d like to get into real estate, but we’ll see how that goes. Thanks for the kind words – so far this new format is working out well for me, so I hope readers like it too.
Hi Ty – Real estate can really amp your portfolio return, but you need to have the temperament for it. I write about on my site, however, check out Bigger Pockets first for some nuggets of wisdom!
Hi Ty –
Few people make the point that there are so many companies that cycle through the S&P, yet we are still doing great! I really like that you made the point. You have to love how the newcomers in the index will keep the growth humming along!
As for keeping cash, even if we were able to get a better return, chances are inflation would be eating away those dollars all the same. Great post as always!
It’s always surprising to me how many blue chips become cow chips. Only the strong survive! Thanks for the kind words, Alex.
I do invest in individual stocks, partly because when I started there weren’t any index funds (and not that many managed mutual funds either). While I do agree that for most of your investments, indexes are the way to go, there is nothing like loading up on an individual stock and then having it go ten-fold while the markets just double. I think, if you want to make the effort, it is worth it to pick a few stocks you’re really passionate about and build up a big position. The secret is to then just sit and wait for things to develop. Time reduces your risk.