I’ve been actively investing—and even dabbling in stock trading—for over 15 years. Yet, in a twist that surprises even me, it wasn’t until this year that I finally ventured into the world of index funds, those elusive ETFs I’d somehow overlooked for so long. Why did it take me so long? And more importantly, what did I discover once I did? First, let me do a quick background on my investing style prior to finally taking the dip and buying into index stocks.
For years, I focused on buying individual stocks and REITs. While many of these investments paid off, a few didn’t go as planned, resulting in losses—though fortunately, those were rare. But more importantly, what I have always focused on are good and proven dividend paying stocks, and I am not talking about value traps, or those that pay a high dividend to lure investors, only for the dividend to be reduced or even cut altogether. I have been lucky enough to have only two such stocks, out of a list of more than 10 stocks I have. While these two stocks didn’t eliminate their dividend, they slashed it due to the companies worsening financial picture. Yield is huge to me, even if it may not be the most important factor when buying stocks.
Fast forward to this year, and after reading so much about index ETFs for years—whether in books or online discussions—I simply couldn’t resist. The idea wasn’t to go with the flow or do what everyone else was doing. It was more about finally acknowledging the benefits of something that has been proven to deliver consistent returns with lower risk. I realized that by embracing index ETFs, I wasn’t just catching up; I was choosing a strategy that aligns with long-term financial success, offering a balanced approach to investing that I had overlooked for far too long.
Index investing has made it easier for people who may otherwise be scared or not comfortable with investing. It is simple, proven, and highly effective. By investing in a broad market index, you’re essentially buying a slice of the entire market, which helps to diversify your investments and reduce risk. This approach eliminates the need for picking individual stocks or timing the market, making it an accessible and less intimidating option for both new and experienced investors. I have come across entire books and online forums that have reduced the art and science of investing to just buying index funds and not bother with much else.
While index investing is a reliable strategy for long-term wealth growth, it requires patience, as it’s not a get-rich-quick approach. Despite the passive management of index funds, it’s crucial to review and adjust your portfolio annually to align with changing financial goals and circumstances. Additionally, be mindful of fees, as even low-cost funds can have costs that accumulate over time and impact your returns. By staying committed, regularly reviewing your investments, and minimizing fees, you can maximize the benefits of index investing.