Index Funds: The Vanguard S&P 500

Consistently picking great companies to invest in can take a lot of time and research. By investing money in an index fund, you can instantly gain access to a diversified portfolio. 

In my twenty plus years of investing, I’ve owned hundreds of stocks. I’ve had incredible winners, disastrous losers, and a whole lot of laggards that ended up going nowhere. Most serious investors will tell you a similar story – we never get it right all of the time.

But what made me a successful investor is the fact that the winners I’ve had have more than made up for the losers. As George Soros once said, “It’s not whether you’re right or wrong that matters, but how much money you make when you’re right and how much you lose when you’re wrong.”

So why have I succeeded when many others have failed?

Luck is always a factor when it comes to investing, but luck in investing tends to lean towards those who do their research.

Unfortunately, the level of research required is exhaustive – and most people just don’t have the time or inclination to study annual reports, listen to earnings calls, or read interviews with CEOs. There are so many choices out there, and it can be hard to make the right one. That’s nothing to be ashamed of. It’s in no way a measure of intelligence or work ethic. It’s just human nature that most people would prefer to spend their time doing something else.

That shouldn’t deter anyone from investing however. Everyone should have some money put away for the future, and investing is the best way to do this.

Thankfully, there are ways that investors can purchase a large diversified basket of stocks in one go rather than picking individual stocks. This is a low-risk way to invest without having to worry about the work that goes into individual stock picking.

Index Funds

Historically, the stock market (as measured by the S&P 500) has returned over 10% on average every year. You can invest in this through what’s called an index fund. And what’s most remarkable about index funds is that you can beat most professionally managed funds by doing this.

Warren Buffett famously said, “By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals.”

To put his money where his mouth is, Buffett challenged hedge fund managers to beat an S&P 500 index fund in ten years, and put $1 million of his own money down as the bet. With two years left on the challenge, the index fund Buffett chose is beating the hedge funds that took him on many times over.

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What Is An Index Fund?

An index fund is simply a mechanism through which you can invest in a large number of stocks without the hassle of researching and picking individual companies.

An index fund aims to track the performance of a particular index like the NASDAQ or the S&P 500. If the index goes up, the price of the index fund goes up. If the index goes down, the index fund price goes down.

We know that the stock market historically goes up over time. Therefore the patient investor can do very well by investing in index funds, with little-to-no effort.


Why Should I Invest In An Index Fund?

You may choose to invest in an index fund for the following reasons:

  • You want to invest right away but have yet to take the time to research individual companies.
  • You don’t feel confident enough yet to pick individual stocks.
  • You have invested in a small number of stocks and wish to diversify your portfolio in the safest and most efficient way possible.


What Exactly Am I Investing In?

Here at Rubicoin, the index fund we have chosen for our users in the Vanguard S&P 500 ETF (VOO).

This index tracks the S&P 500, which means that you are investing in the 500 largest companies that trade on the American exchanges. The top five holdings of this fund are Apple, Alphabet, Microsoft, Exxon Mobil, and Johnson & Johnson.

One stock of Alphabet currently trades at around $810, yet you can get exposure to Alphabet and 499 other companies for around $200 through this fund.

How Has The Vanguard S&P 500 Fund Performed?

Since its inception in 2010, this fund has had an annual average return of 14.89%, above the long-term historical average as a function of when it launched.

It’s important to remember that when you invest solely in an index fund like this, you won’t beat the market. This is because index funds are designed to match the market.

I hope this new feature of our product will open up the world of investing to more of our users and help them to get started in a low-risk and profitable way.

I still believe that everyone should own individual stocks throughout their lifetime, but investing in an S&P index is a great way to introduce yourself to investing while gaining exposure to a large number of companies.

 

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Rubicoin operates a full disclosure policy. Rubicoin staff currently hold long term positions in Vanguard S&P 500, Apple, Amazon, Google and Microsoft.

6 responses to “Index Funds: The Vanguard S&P 500

  1. Is there any restrictions when trading online from Ireland, Robinhood explain that you must have SSN and US residency,is this correct, am very interested in getting started

  2. Hi Stephen, You don’t need an SSN. You can invest from outside the US, however, you can not use Robinhood. It is US-only. We have a partnership with Drivewealth for international customers which you can set up through the invest app. If you have any trouble setting up an account please let me know. Regards, Rory

  3. Hello Emmet/Rory, The Rubicoin number one rule seems to be focus on the long-term. If we can be extremely confident that in 20+ years the S&P 500 will be higher than it is today, why not just invest in an ETF like UPRO, UDOW, or TQQQ and get 3 times the return of the base index? Seems like a simplified method of attaining returns comparable to a basket of individual companies. Best, Trent

  4. Hi Trent, It’s a good question with a complex answer (that probably merits a full blog). The short answer is that this strategy would inject a huge amount of risk into your portfolio. While we may be confident in the long-term performance of the S&P 500, we can’t be confident of the short-term. The three ETF’s you’ve mentioned have been good performers since their inception, but notice that none have been tested in a down market (which will happen at some point). Let’s imagine you did own a 3X leveraged S&P index in 2008 when the market fell 37%. Suddenly you’re entire portfolio is wiped out. While the S&P can recover (which it has and then some), the fund you own will never recover. Or imagine you owned UDOW on Black Monday. That’s the simplified answer. You also have to factor in decay, fees, etc. Again it’s probably a good topic for a blog. Regards, Rory

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