Index Funds For Beginners: A Step By Step Guide To Index Investing (2024)

In this video, I explain everything you need to know about index investing to start you on your investing journey!
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Chapters
00:00 Start Here
00:42 What is an index fund?
01:50 How an index fund works
02:53 The Pros of Index Funds
04:27 The Cons of Index Funds
06:30 Choosing The Right Index Fund
09:44 Opening A Brokerage Account
11:02 Buying An Index Fund
The best way to grow your money in the stock market is through what Warren Buffet calls, "His favorite investment" or index funds. In this video, I explain everything you need to know about investing in index funds.
What is an index fund?
In order to understand what an index fund is, it's best to first understand what a stock is. When you buy a stock, you are buying a single company that is represented by a ticker symbol like Apple or AAPL. Whereas when you buy an index fund, you are buying one fund that is composed of a diverse group of stocks that tracks a market index like the SP500.
How an index fund works
Understanding how an index fund works is very simple. An index fund simply mirrors a market index like the SP500. So whatever the market index produces, the index fund will also produce. For example, if the SP500 goes up 1%, then the your index fund will also go up 1%.
The Pros of Index Funds
There are pros and cons to index investing and first let's talk about the pros. The first pro is that it is a lower risk investment. Instead of the performance being based on a single company like a stock is, it is based on a diverse portfolio of stocks. The second pro is long term growth potential. In the long term, the market has averaged a 10% return a year, and although this is not guaranteed, the potential of getting a return on your investment is very high. The third pro is it is a passive investment. Index investing does not require any work from you. All you have to do is simply buy and hold.
The Cons of Index Funds
Although index funds are a great investment, they do come with some cons. The first con is that you will not beat the market. If you are trying to beat the market, which is very difficult, you will not do it through index investing. The second con is slow growth. Building wealth through index investing takes time and if you are trying to do it quicker, you have to chose another investment. The third con is it's boring. If you are trying to get a thrill through investing, you will not get it as index investing is a passive form of investing.
Choosing The Right Index Fund
In theory all index funds should perform the exact same because they are all tracking the same index (in the case of this video, the SP500). However, there are some things you want to consider when deciding which one to choose. The first thing to consider is the minimum investment amount. Depending on how much money you have, it could limit which funds you can buy. The second thing is a transaction fee. Normally, if you buy an index fund outside your brokerage, you will encounter a fee. That said, whatever index fund you choose, should also be your broker. The third thing is the expenditure ratio. You do have to pay a small fee, but strive to keep this fee under .05%. The final thing is if it is an index fund or an ETF. ETFs are very similar to index funds, so make sure you are not buying an ETF.
Opening A Brokerage Account
Once you decide which index fund you want to index with, next you need to open a brokerage account or investment account. Simply go to Charles Schwab, Vanguard, or Fidelity and open an account.
Buying An Index Fund
Once you open a brokerage account, you can finally buy an index fund and begin investing. In the video, I show you how to buy one using the Schwab interface.
**This video is intended for entertainment purposes only, none of it should be interpreted as financial advice. Links above are affiliate links where if you click and order, I will receive a commission at no cost to you. **

[@ElAgustin]

I'm wanting to make more educational "how to" style videos. What are some topics you are interested in me making?

[@shanishine38]

Setting up a Roth IRA as a self-employed person?

[@julia-cellar7784]

I’d love to learn more about 401k investing for example I have a Vanguard account and I just put everything into a target fund. We also have the option to do a Roth 401k so learning about the difference between a Roth and traditional 401k..and when to choose your investments vs put it all to target funds would be awesome. Love you and your videos!

[@ariane2714]

I'd love to see a "how to budget" video for keeping track of monthly expenses and sticking to a budget for unnecessary expenses

[@juliem.3936]

@@ariane2714 I put a set amount of money in my budget and label as "miscellaneous" to use for expenses that creep up.

[@embercello9688]

@@julia-cellar7784 Agree. The company that acquired ours offers Roth 401k and After-Tax 401k in addition to the Pre-Tax 401k option we already had (100% target date fund; although I just adjusted to a later target date based on comfort with increased volatility that'll ensue for a bit). It'd be helpful to understand more about them and the differences.

[@larrydimon7811]

This should be shown and taught in schools it’s so important for young people to realize the value in financial freedom and not be tied up to bad debt.

[@BudgetBirdeye]

I’m a big Stocks and ETFs guy. It has worked very well for me! I plan on retiring at age 40 and I still have 6 years or so to go and my Roth account currently holds around ~$2.3m!

[@OhhHellNoYouWont]

Nope I had $110k in SCHD for a year and a half and not much changed in that time period

[@BudgetBirdeye]

I own SCHD too and I think you’re sitting on a great stock, but mixing in some other assets is how to do it in reality :)

[@BudgetBirdeye]

I tend to be conservative in my approach to investing, relying on qualitative information and pro advice when picking stocks and determining entry and exit points. This is my fourth year in the market and I am confident that my investments are being professionally managed, and I sleep well at night.

[@VanillaCherryBread]

Hi @@BudgetBirdeye I’d love to know more about how this works. I’m a beginner taking baby steps gingerly, it’s all too much and I get overwhelmed.

[@Margaret-tf5ty]

Its worse here, our economy is like a flailing fish, fighting for its life. The normal state of the U.S. economy is actually very bad. Because of this it goes into convulsive spasms fighting to grow any way it can out of desperation. Tricks, gimmicks, rule changes try to stimulate the economy and prevent it from falling but they only bring temporary relief to people since, when you factor in inflation we are declining.

[@Laura-tx4pj]

People believe their currency has the worth it does because they have no other option. Even in a hyperinflationary environment, individuals must continue to use their hyperinflationary currency since they likely have minimal access to other currencies or gold/silver coins.

[@Ruth-sl5mx]

Inflation is gradually going to become part of us and due to that fact any money you keep in cash or in a low-interest account declines in value each year. Investing is the only way to make your money grow and unless you have an exceptionally high income, investing is the only way most people will ever have enough money to retire.

[@Ruth-sl5mx]

Angela Lynn Schilling is her name. She is regarded as a genius in her area and works for Empower Financial Services. She’s quite known in her field, look-her up.

[@leeallsopp5152]

Great vid once again dude! Nearly at 80k 😎👍

[@amys7828]

This is the most helpful video I have ever seen about investing. Thank you so much!!!

[@CrossFitterinRealtime2359]

Gracias Agustín, saludos desde Dublín 🇮🇪😃

[@samsabuncu]

This is the simplest video on KZbin I have encountered regarding investment! Well done on your communication and clarity.

[@bthomas50]

Great information Austin. I am thinking I need to start an account for index funds to go along with my 401K and Roth IRA.

[@katyalafon9006]

Nice plants setup 😊

[@robyn_southafrica]

Just a heads up at 12:34 re-edit the video, can see your Roth IRA #!! Anyways great video!!!

[@danicegewiss862]

I buy ETF's which are very similar to Index funds. They're just purchased at different times, to put it simply.

[@Revert2017]

This explained a lot to me- well done!

[@HaMou261]

Clear simple straight to the point ☝️ thanks Austin

[@quibblegaze]

0:00: 💰 Passive income through index funds explained with examples. 3:03: 💰 Advantages of index funds: lower risk, long-term growth potential, passive investing. 6:04: 💡 Factors to consider when choosing an index fund for investment. 9:07: 💡 Consider key factors when choosing an index fund and opening a brokerage account. 11:59: 💰 Maximize growth by reinvesting dividends in index funds for tax benefits. Timestamps by Tammy AI

[@KarenRB32]

Thank you Austin! This is what I was looking for. I used to invest but had gotten out of it. But for my retirement, I've been doing more research. Thank you

[@Asiansirens1]

Thanks for the investment advice

[@dicandidosoares]

Thank you for explanation Augustin

[@kindraporter3887]

Excellent explanation, El Augustin. Thanks.

[@suymiller]

Excellent video. Buenas tardes Agustin

[@sylvianunez1233]

HI Austin, I really enjoyed how you explain investments. Thank you for making this video.

[@Divinenubian]

I like etf better to start thanks for sharing

[@teresazhen7317]

Thank you for your content Austin 😊

[@shanishine38]

Thank you for this video. It was helpful, as always. Austin, you rock! 🤘🏾

[@adrianaricalde2905]

Excellent video. Thank you!

[@georgeandrews2839]

Good one

[@debbiewalker273]

You explained it so well. If I can understand it, anyone can ! Thanks Austin ! 😃

[@ElAgustin]

Great! Glad I explained it clearly!!

[@noreenn6976]

Well done Austin!

[@ericbrown8106]

Very helpful video! Thank you!

[@caroline418]

This was very helpful. Thanks!

[@Vic-nr2jz]

Love this. Great educational video. Thank you!

[@lindafuller446]

Thank you for educating me and your followers about this subject. It’s paid off for me!! 😊

[@rachelwalsh4378]

I get it 🙌🏻 Thanks Austin 👍🏴󠁧󠁢󠁷󠁬󠁳󠁿

[@TessFlemingRealEstate-ix6uc]

Thank you

[@eb4225]

This video comes at the perfect time, saving money is essential but investing is very important too. Thank you.

[@ElAgustin]

Yes, you hve to get the money to work for you!

[@nonsonwafulume8315]

My guy u make learning easy

[@DC-ef8op]

At 48 years old I have 401k through work, but opened my first roth ira from your investing video. You make it easy to understand, thank you soooo much. :)

[@reginabowers9890]

Enjoyed video. Answers a lot of questions. Thank you

[@ElAgustin]

I'm glad! Hopefully it can help others too!

[@asimqureshi3831]

Love your explanation. You deserve a big heart

[@plappin]

Really well done, Austin. Thank you!

[@ElAgustin]

I appreciate it! Trying to throw in some "evergreen videos" to stabilize things on my end! These are really fun to make too!

[@carmenalabat8425]

Austin what are your thoughts on target date index funds?

[@veena4245]

What is ETF?

[@jackiemeyers3857]

Two Questions. Are you ever too old to start investing in index funds? And if the investments are in Roth, when withdrawing, do you only pay taxes on the capital gains and dividends? Thank you 😊

[@minstreltokunbo]

if you already have a brokerage account with your employer should you use it or open a new one. i also was wondering why you put mostly put fidelity first and then charles schwab (the one you use). Did you place them in order of value , since the order of placing them alphabetically is not working in this case?. thank you for the video

[@ElAgustin]

No deep reason. No specific reason at all.

[@minstreltokunbo]

Thank you.

[@lovenanuka684]

hi great info, could you make a video on day trading index funds? ciao!

[@j.m.b5441]

Best explanatory video I've ever seen about this topic, thank!

[@ElAgustin]

I appreciate it! Hoping others think so too!

[@j.m.b5441]

@@ElAgustin Keep up the great work!

[@chrisl418]

Thank you! So so helpful.

[@ElAgustin]

I'm glad!

[@christopherbellboy25252]

Great video! I'm having a hard time deciding between the 3 brokerage accounts. I plan on moving to Europe in about 10 to 15 years, and would like to withdraw from my brokerage account (once I choose one) to supplement income if I need too. But I don't know how taxes would work so a video on that would be great.

[@perpasben7778]

Taxes in europe vary country to country. If you are a fiscal resident in europe, your capital gains (your stock benefits) will pay tax in europe.

[@TeamPowah]

Correction: someone is "passively" managing these ETFs, not "actively".

[@jennesont4791]

I'm in Canada, but this is still helpful

[@teemomain8268]

I wanted to tell you Austin you seem extremely genuine as long as I've been watching you and your videos are very helpful. I've shared them with my friends and they love the content as well. 🔥💯

[@ElAgustin]

Thanks! I believe that's the most sustainable path to do this long term!

[@WorkAtHomeOnlineForFree]

Extraordinarily helpful. Thank you so much!

[@Fenrid7]

Hello great content, so lets say I buy an index fund for $100 today, and then next month I have an extra $100 from my paycheck that I would like to invest. Do I just buy a second Index fund? or do I have an option to say I wanna add it to my first index fund?

[@miamiflorida6965]

We need more of these videos.

[@rabindranauth1235]

Hi , awsome content , Is it possible to open a brokerage account while not living in the US , meaning as foreigner if so what is required?

[@carmenalabat8425]

Excellent explanation of investing. Question can you buy one to two index funds automate them and hold until you plan to retire ? Also if you buy 100 worth and each share is 87.00 what happens to the remainder of the money does it sit in a settlement account?

[@ElAgustin]

It's factional shares. So it'll be like I bought 1.23 or whatever shares. You have to check with your broker, but some allow you to buy fractional shares while others don't.

[@NanaNicole2024]

Are there any index funds that do not make profits off interest?

[@neelrastardust3052]

Are there fees on platforms like M1 Finance to purchase these index funds?

[@ElAgustin]

You'd have to check with the platform. Not sure.

[@myrnarobles4133]

Saludos desde Puerto Rico.

[@ElAgustin]

Hola!!!

[@neiltarbuck8076]

Great video - but also in passive investing - you also want to have diversity and keep everything under one umbrella. This is what I do. I use one broker and pay the fees for other investment companies. Remember passive investing is investing in the best funds and then sitting back and enjoying the benefits, without having to do the calculations for each broker. It takes me about 2 minutes to check on my investments.

[@stoicfreediver]

First comment, Bro! Thank you for the inspiration! 👍

[@ElAgustin]

Thanks for showing up!!!

[@MadisonBriggsArtchick]

This was so helpful. You are a great teacher! You take time to explain things to novices like me. I so appreciate that! One question, what does the IRS tax on gains yearly if you keep the money in the index fund instead of withdrawing it?

[@ElAgustin]

You don't get taxed until you withdraw. It's called, "Unrealized Gains" because you haven't actually made the money. Once you withdraw or "Realize" it, then you are taxed and depending on the length of time it's been invested determined the rate.

[@eileenordu1123]

Thanks so much for your clear, simple, and very accessible and informative video! I shared this with my ESL class of working immigrants and many of them are now investors. Pretty cool.

[@ElAgustin]

Thanks!!!!!!!! You're too kind! Awesome to hear!!!

[@alanahernandez5980]

why did you buy at $100? can you purchase for $1?

[@tarbuck1]

Having one broker and one umbrella is important - but check the fund graphs and pay the fees to invest with another broker if you fancy it. Diversity and sitting back is what passive investing in funds is all about. Cheers mate.

[@CarlosPhiri-ew6kb]

lets say invested 100 dollars can l add more on top of that

[@jaymoney3215]

Talk about Bitcoin

[@BrianK-zz4fk]

great presentation on this subject. As someone that has been investing in the market since I was a teen and cost 2% to buy a stock, agree dont pay fees now regardless or find another brokerage. One thing to add most actively managed funds under perform the S&P and regular investment in intervals can take advantage of the crashes. My 401k was down 40% in 2009 but continued contribution were some of the best investments in my life.

[@mithzynelson1080]

I love the Spanish lol

[@nescafeshorts1900]

1st time buying the Schwab S & P 500❤

[@mbank3832]

So should I buy index fund or etf ? They are both so similar

[@ElAgustin]

It's up to you, but a big difference is the ETFs are easier to enter and exit. You can sell and buy them like stock at any time. Whereas index funds are bought and sold on the price when the market closes. So it depends on your investment strategy.

[@BrianK-zz4fk]

be warry on which ones you choose the SPY mimics market but some dont do what you think like sector ones like DIG thinking oil will go up doesnt actually mimic oil.

[@keolumford3547]

Hi. Do you have to put money in every month what happens if you don’t put money in every month. Maybe yo can make a video about this

[@ElAgustin]

When you buy it, you don't have "money," but you have "shares" and those shares will grow and decline depending on the market. But as long as they are invested they do the work. You can just put money whenever you want. There's no plan needed. Obviously, when you put in more, the more it will grow or decline as your portfolio is larger!

[@keolumford3547]

@@ElAgustin thanks and your video comes at a good time because I am researching investing

[@xf4628]

Thank you for your sharing. I am going to become a passive investor after losing a lot of money on individual stocks investments

[@Moonless6491]

For now I'm investing in a government money market account with all but guaranteed high interest right now. I don't have the finances to risk losing in the markets right now.

[@verbalasswhooping]

I'd say sell what you need upon retirement...maybe what's left leave for the kids but you can't take it with you... enjoy some of it!

[@lashayparker5602]

I agree completely!

[@ElAgustin]

Gotta enjoy it at some point! I'm at such a different life phase that it seems so far away!!!

[@verbalasswhooping]

@@ElAgustin Time Flies. I remember bringing my eldest daughter home from the hospital...now she's 25 and my other children are grown as well ...so it'll be here before you know it. Enjoy life a little while you're making plans...it sneaks up on you...let alone tomorrow isn't promised. Thank for your content Brother... stay safe and best to you in your endeavors... enjoy your youthfulness to the fullest!

[@Betty-dc5ck]

I think investors should always put their cash to work, especially In 2024, we'll start to see more market diversification. I'm hoping to invest about $350k of my savings in stocks against next year. Hope to make millions in 2024

[@Helen-tg4tr]

Since risk is at an all-time high right now, perhaps you should be a little more patient and return when it has decreased. Alternatively, you can consult a trained financial expert for strategy.

[@Lisa-jy7bk]

I’ve been looking to switch to an advisor for a while now. Any help pointing me to who your advisor is?

[@LucyMcCauley]

Just sold a property in Portland and I'm thinking to put the cash in stocks, I know everyone is saying its ripe enough, but Is this a good time to buy stocks? How long until a full recovery? How are other people in the same market raking in over $200k gains with months, I'm really just confused at this point.

[@Gregtaylor4U]

Yes, a good number of folks are raking in huge 6 figure gains in this downtrend, but such strategies are mostly successfully executed by folks with in depth market knowledge

[@Morgansta]

Very true. Despite having no prior investing knowledge, I started investing before the pandemic and pulled in a profit of approximately $950k that same year. In reality, all I was doing was getting professional advice.

[@JimGreenfield]

How can I participate in this? I sincerely aspire to establish a secure financial future and am eager to participate. Who is the driving force behind your success?

[@Morgansta]

@@JimGreenfield There are a lot of independent advisors you might look into. But i work with Dianne Sarah Olson and we have been working together for nearly four years, and she is excellent. You could proceed with her if she satisfies your discretion. I endorse her

[@Maryesther1]

@@Morgansta Thank you for this tip. it was easy to find your coach. Did my due diligence on her before emailing her. She seems proficient considering her résumé.. can I get a way to communicate with you as I have some questions

[@juliem.3936]

You forgot your disclaimer", "I'm not a financial advisor nor am I giving financial advice"! Excellent content! Thanks for breaking it down. 🙂

[@GreggsBerdard2]

What are the best additions to a $500k portfolio to boost performance? S&P 500 is Up and will do better in 2024 I believe as indicators for profits continue to improve, investors like me believe that “Santa has come early” to the markets.

[@GreggsBerdard2]

wow massive gains! my partner recently hinted on going same direction.. what did you invest in, and who is your investment adviser please, if you don’t mind me asking? in dire need of asset allocation

[@GreggsBerdard2]

Thank you for this amazing tip. I just looked the name up, wrote her explaining my financial market goals and scheduled a call.

[@alim8167]

Mutual funds better than index funds? After fees Ramsey says mutual funds perform better.

[@user-lz5ff3ju1c]

Hello 👋👋 I have better Passive income than Index. I have Agricultural land on Rent+ My house 1St portion on Rent 😊 I take the Passive income Amount and invest in true money 💰 called Gold Bullions 😊 I don't Enjoy Index funds or Stock Market 😕 I Enjoy Real Estate Rental properties 😊 or physical Gold Bullions 😊 long term investment 😊 Also in My country buying Cars is excellent 👍 investment. Because Cars are very Expensive. So if New Car goes up, used Cars prices go up as well. Our Economy depends on the Exchange rate of USD currency 💲

[@abrahams.lincoln6749]

Eh?

[@abrahams.lincoln6749]

Buffett loves to receive dividends but refuses to pay a dividend. That speaks volumes…🇺🇸

[@user-lz5ff3ju1c]

@@abrahams.lincoln6749 Disagree. But I respect your opinion

[@415shizzle]

Hey austin I need some help with my vanguard account is there a way to email you?