A Step-by-Step Guide to Building Wealth with Low-Cost Index Funds

lavorgna3
May 6, 2024
3 min read

In his book "Unshakeable", renowned life and business strategist Tony Robbins provides a clear and actionable blueprint for building long-term wealth through smart, low-cost investing. Here's a step-by-step summary of his approach:

1. Understand the Power of Index Funds

Robbins emphasizes that the key to successful investing is not trying to "beat the market" through active stock picking or expensive mutual funds. Instead, he advocates for a passive, low-cost indexing strategy. Index funds simply track the performance of a broad market index like the S&P 500, allowing you to own a piece of the entire stock market at a fraction of the cost of actively managed funds.[1][2][3]

2. Minimize Investment Fees

Robbins stresses that investment fees can have a devastating impact on your long-term returns. He cites research showing that just a 1% difference in fees can cost you up to 10 years' worth of retirement income.[1][2] The solution is to stick to index funds with expense ratios under 0.20%, rather than actively managed funds that can charge 1-3% or more.[1][2][3]

3. Avoid Market Timing

Robbins cautions against trying to "time the market" by jumping in and out based on short-term fluctuations. Instead, he advises consistently investing a fixed percentage of your income, regardless of market conditions. This "set it and forget it" approach has been shown to outperform attempts to actively manage your portfolio.[3]

4. Start Investing as Soon as Possible

Robbins emphasizes the importance of starting to invest as early as possible, even with small amounts. Thanks to the power of compounding, even modest contributions made consistently over decades can grow into a substantial nest egg.[5]

By following these principles - indexing, minimizing fees, avoiding market timing, diversifying, and starting early - Anyone can build lasting wealth and achieve financial freedom. The key is to stay disciplined and keep your investments simple.

Building Wealth the Easy Way: How to Invest in Vanguard's Total Stock Market Index Fund (VTI)

The Vanguard Total Stock Market ETF (VTI) is a popular and low-cost way for investors to gain broad exposure to the entire U.S. stock market. The fund tracks the CRSP U.S. Total Market Index, which includes over 3,700 stocks across large-, mid-, and small-cap companies. VTI has delivered impressive long-term returns, with an average annual gain of 8.3% since its inception in 2001. The fund's expense ratio is just 0.03%, making it one of the cheapest index funds available. VTI also pays a quarterly dividend, with a current yield of around 1.4%.

In terms of holdings, the fund is heavily weighted towards the technology sector, with Microsoft, Apple, and Alphabet as its top three positions. Overall, VTI provides investors with a diversified, low-cost way to participate in the growth of the U.S. equity market.

Steps to Invest in VTI and Build Wealth

1. Choose a Brokerage: Open an account with a reputable online broker that offers commission-free trading of Vanguard ETFs, such as Vanguard, Fidelity, or Charles Schwab.

2. Set Up Recurring Investments: Establish a monthly or weekly automatic transfer from your bank account to your brokerage account. This "set it and forget it" approach allows you to invest consistently, regardless of market conditions.

3. Invest in VTI: Use the funds in your brokerage account to purchase shares of the Vanguard Total Stock Market ETF (VTI). You can buy fractional shares if your initial investment is less than the full share price. You can set this to be automatic with most brokerages now.

4. Stay the Course: Resist the temptation to time the market or make frequent changes to your portfolio. Stick to your long-term investment plan and let the power of compounding work in your favor.

By following these steps and investing in VTI, you can build wealth over time through a simple, low-cost, and diversified approach to the stock market - just as Tony Robbins recommends in "Unshakeable". With its impressive long-term performance, rock-bottom fees, and broad market exposure, VTI is an excellent choice for investors looking to grow their money the easy way.