The boxes on the left and right look very similar. Putting your money into each of them is about the same level of difficulty. It just takes a few clicks on a website. Yet the impact it can make to your financial life is dramatic.
On the left is a savings account. Imagine your money sitting in a bank vault doing nothing. You get some paltry interest from the bank as a thank you for allowing them to use your money to run their loan business.
On the right is an index fund. Instead of sitting there doing nothing, your money is used to purchase a share of every company in the US. Over the next 30 years, you own a piece of Apple, Amazon, Google, Netflix, Walmart, Home Depot, Fedex, and thousands more. When all of those companies grow, hire, innovate, sell, and profit, the resulting growth comes directly back to you in your index fund.
Index funds don’t have salespeople. What you’re reading is the closest thing you’ll ever get to a “pitch” to buy index funds. Because no one gets a commission when you buy an index fund. By design their fees are near zero. That is so you, the owner, reaps all the benefits rather than as commissioned salesperson.
So where does your money sit? Collecting dust in a bank vault, or out in the world harnessing the compound growth of the global economy?
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
-Jeremy
