Index Funds — The FI Investor's Best Friend

Why Index Funds Win

An index fund is a basket of stocks that tracks a market index — like the S&P 500. Instead of betting on individual companies, you own a tiny slice of hundreds or thousands of them at once.

The case for index funds is overwhelming:

• Low fees — expense ratios of 0.03-0.20% vs 1-2% for actively managed funds
• Diversification — automatic exposure to the whole market
• Performance — 90%+ of actively managed funds underperform their benchmark over 10+ years
• Simplicity — no research, no stock picking, no guessing

The Three-Fund Portfolio

The simplest, most battle-tested FI investment strategy:

Fund	What It Holds	Example (Vanguard)
US Total Market	All US stocks	VTSAX / VTI
International	Non-US stocks	VTIAX / VXUS
Bonds	Fixed income	VBTLX / BND

Allocation rule of thumb: Your age as a percentage in bonds, the rest in stocks. At 30: 30% bonds, 70% stocks.

The Two Rules of Index Investing

Rule 1: Keep buying. Set up automatic monthly contributions and don't stop. Market down 30%? You're getting shares on sale — keep buying.

Rule 2: Don't sell. Time in the market beats timing the market. The investors who panic-sell during downturns permanently lock in losses and miss the recovery.

Where to Start

1. Open an account at Vanguard, Fidelity, or Schwab
2. Max tax-advantaged accounts first (401k, IRA — see next lesson)
3. Invest in a total market index fund
4. Set up automatic monthly contributions
5. Stay the course during downturns