Index Funds, DCA & Robots: The Lazy Way to Build Wealth

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You now know a few things about the potential upside as well as the risks of investing. Now, let's look at one way to put this knowledge into practice.

Index Funds

An index fund is a single asset that represents a large basket of stocks. Buying an index fund is equivalent of buying a small portion of each and every company represented in the fund.

For example, the SPDR S&P 500 ETF Trust (ticker: SPY), more commonly referred to as the S&P 500 is a fund that invests in the 500 largest, publicly traded American companies.

Examples of Index Funds

Below are some examples of index funds. You can enter the 3-letter ticker symbols to find these in Tradingview or your brokerage app.

  • SPY — 500 largest US companies
  • IWM — 2,000 largest US companies
  • QQQ — top 100 tech companies
  • SMI — Swiss market index - you can find many country-specific index funds like this one

Thesis Based Funds

This is a type of ETF (exchange traded fund) that is a basket of companies that all share a thesis. For example:

  • QQQ — Thesis: tech companies is where most growth will happen in the future.
  • ICLN — Thesis: clean, renewable energy is the future.
  • QCLN — another clean energy index
  • FAN/TAN — wind/solar energy companies
  • ARKK — Thesis: specific sectors and companies disruptive innovation potential.
  • ARKG — Thesis: genomic tech is the future of medicine.
  • ARKQ — Thesis: robots and AI are the future of everything.

You can buy any of these through your brokerage app.

The real question is how, when, and how much of these do you buy?

We know that trying to time the market is a bad strategy and it generally backfires. So what do we do instead? This is where DCA comes in.

DCA — Dollar Cost Averaging

DCA means investing a fixed dollar amount every week (or every month, or any other time interval you prefer), no matter what the current price is. For example: "I will invest $50 every week on Monday."

With DCA, price movements in the short term don't matter. You DCA into an asset that you believe will grow in the long run. If the price is lower this week: great, you get more shares for your money! If the price is higher this week: great, your investment is growing in value!

This is how you overcome all of the monkey mind problems. Keep it simple for yourself. Set this rule and stick with it.

DCA calculator for stocks: click here

DCA calculator for crypto: click here

Robo Advisors — Taking Passive Investing to the Next Level

Robo advisors are for you if you want to make your passive investing even more... well, passive. A robo advisor is a service that creates a highly diversified portfolio for you and makes it as easy as possible to:

  1. Invest a DCA amount on a regular basis.
  2. Rebalances your portfolio every once in a while.
  3. Automates a few other small processes that you would usually pay an advisor to do for you (e.g. tax loss harvesting). 

Robo-advisors try to provide a more optimal passive investment than if you'd just put a set amount of money into the S&P 500 every month. They manage your portfolio so you don't have to make any decisions.

Wealthfront and Betterment are examples of US based robo-advisors.

You can easily find robo-advisors for whichever country you are in.

The idea behind robo-advisors is always: low fees, index funds, and automation.

You Know Enough to Start Playing the Money Game

At this point you have enough knowledge to start making decisions. Not big, life changing, final decisions. But initial decisions.

Do you want to sign up for a robo advisor and take a totally hands off approach? Do you want to buy index funds, individual companies or a combination of both? Do you want to start a DCA strategy and if so, how much cash do you want to allocate?

Get started with what you think works best for you, at this moment in time. As you learn more and gain more experience, you'll adjust your strategy.

Important: initially, always play with a small amount. Something you're comfortable with losing. Early on staying in the game is the top priority. Don't make any decisions that can get you wrecked.

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