Multi-billionaire and legendary investor Warren Buffett continues to encourage people to never bet against America, especially when it comes to investing. One of his greatest advice to investors is to invest in low-cost index funds to grow wealth. Last week, I heeded his advice, bet on America by essentially buying the U.S. economy. Stunningly, I won.
Index funds: The cheapest way to build wealth
An index fund is a type of mutual fund that tracks the returns of a broader market index, such as the S&P 500, Russell 2000 Index, NASDAQ Composite Index, etc. The benefits of index fund investment are numerous, including access to a more balanced portfolio, an opportunity to buy fractional shares, and low expense ratios, among others. Here's how I bought the U.S. economy.
How I essentially bought the US economy with a single index fund
Last week was a bad week for investors. The S&P 500 index lost nearly 3%. This index measures the value of the stocks of the 500 largest companies that trade on the New York Stock Exchange. It is usually used as a marker of how the US stock market is performing. Historically, the S&P 500 has delivered stunning returns, as you can see below.
As of 3/11/19, the S&P 500 is up 11.48%. Previously, I recommended an index fund to invest your first $50 in: FXAIX. This is exactly the fund I bought. The Fidelity® 500 Index Fund (FXAIX) tracks the returns of the S&P 500 index. This single fund allows a person to invest in the stocks of all the companies listed on the S&P 500! As of 3/11/19, FXAIX has 508 stocks or holdings in its portfolio. It has an amazingly low expense ratio of 0.015%. For every $10,000 a person invests in that fund, she only pays $1.50 annually! As a result of last week's lackluster stock market performance, I bought FXAIX at a net asset value (NAV) of $95.70. With whatever little cash I had laying around (cash is trash, not king, invest it!), I bought 3.03 shares with $290 ($290/95.70). Something amazing happened.
Capital gains: A powerful engine of stock market wealth
Since the S&P 500 won today (3/11/19) by closing up at 2,783.30 points, a gain of +40.23 or 1.47%, FXAIX won as well; it tracks that index. By the end of trading today, the NAV of FXAIX stood at $97.10, a gain of $1.40 from initial purchase price ($97.10-$95.70). Having bought 3.03 shares of FXAIX, the amount of money made in capital gains is $4.24! The total portfolio balance is now $294.24 ($290+4.24).
The bottom line
Low-cost index index funds are the cheapest way to build wealth in the stock market. They have been endorsed by many savvy and expert investors, including Warren Buffett. A fund that tracks the returns of the S&P 500 is a great way to buy the U.S. economy. Those who have ridden on the back of the American brand have not been disappointed. Skepticism or a lack of understanding of how investors make money on stock market investments is one of many reasons people do not invest. Capital gains and dividends are the two main engines that propel stock market wealth. I hope you will bet on America, invest in a low-cost index fund, and start jump-starting your financial future. In approximately 3 months, I will post an update to this post.
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