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How to Use Index Fund Investing to Achieve Financial Independence

  • Individuals who have achieved financial freedom or are on track to do so don’t just save their money.
  • They invest their money. And a handful of them got started with index fund investing.
  • It’s a relatively low-risk and hands-off strategy that anyone can use to build wealth.

Building long-term wealth requires more than just saving. If you keep your money in cash, inflation will erode your purchasing power as each year passes.

If you invest your money, though, you can double or even triple your savings, thanks to compound interest. (Compound interest is interest on top of interest and, if used correctly, it can turn a relatively small initial investment into significant wealth.)

Insider has spoken with dozens of individuals and couples who have achieved financial freedom or are on track towards doing so. Each one of them invests their money.

There are many different ways to invest your money, and how you choose to do so is entirely up to you, but if you want a relatively low-risk and hands-off strategy, consider index fund investing.

That’s how Grant Sabatier, self-made millionaire and author of “Financial Freedom,” dipped his toes in investing.

“I started just like a lot of people who are pursuing financial independence with an index-first strategy,” Sabatier, now 37, told Insider. “I had read Jack Bogle’s work in early 2011 and was pretty convinced that index funds were the way to go.”

grant sabatier

Grant Sabatier, author of “Financial Freedom”

Courtesy of Grant Sabatier


Index-fund investing, which was invented by the late American investor Bogle, is a simple and typically inexpensive way to put your money to work.

An index fund is essentially a basket of stocks that represents a broad market. For example, the S&P 500 holds 500 industry-leading US companies, so when you invest in this particular index fund, you’re buying a small piece of companies like Apple, Microsoft, and Amazon. The broad diversification eliminates the risk of huge losses from single stocks. These types of funds also tend to have low management fees since they’re passively managed.

Sabatier started investing in the Vanguard Total Stock Market Index Fund (VTSAX) in 2010. In his book, he broke down the exact number of shares he owned, price per share, and total value of his portfolio from 2010 to 2015, when he grew his wealth from virtually nothing to more than $1 million. He also included his total income and savings rate for each year.

In 2010, he made $43,000 and bought 520 shares for $16,416. By the end of 2011, he owned 4,894 shares and his portfolio was worth $153,182.

In 2012, he was making more than $200,000, thanks to side hustles like buying and selling website domains, flipping VW campers, building websites, and blogging. He spent nearly as much time on his side hustles, about 40 hours a week, as he did working his day job at a digital marketing agency. More income meant more money to invest, and he started investing in the Vanguard Total International Stock Index Fund (VTSNX) in addition to the total stock market index fund. He bought 1,892 shares for $47,395 in 2012.

He continued investing in both index funds from 2012 to 2015. By 2015, he had a total of $825,951 stashed in index funds: $742,347 in the Vanguard Total Stock Market Index Fund and $83,604 in the Vanguard Total International Stock Index Fund.

He’s not the only millennial who has used index fund investing to build wealth and achieve financial independence. 31-year-old investor Danny Baldus-Strauss, who built up a seven-figure portfolio in less than a decade, started by investing in the S&P 500.

Danny Baldus-Strauss

Danny Baldus-Strauss built a seven-figure portfolio thanks to consistent saving and investing.

Courtesy of Danny Baldus-Strauss


To be sure, both he and Sabatier eventually invested in individual stocks, as well as crypto, which is riskier. Baldus-Strauss says he felt comfortable taking on more risk when he was debt-free and had more investing experience.

“These types of assets are a lot more volatile,” he said about the small cap stocks and bitcoin he bought. “But I didn’t buy them until I had about five years of investing experience with true skin in the game.”

Another millennial on track to retire early, 31-year-old Chloé Daniels, saved over $200,000 in 2.5 years using index funds.

Early in her career, “the idea of ​​investing terrified me,” she said. “I always thought, ‘Investing is for smart people. It’s for people who know what they’re doing. That’s not for me.'” But she learned through trial and error that investing in index funds is simple and effective.

This type of investing “doesn’t require you to pay attention to what the stock market is doing every day, and it is actually more effective than actively managed mutual funds,” said Daniels. “It’s not about trying to time the market. Instead, you want to spend time in the market.”

Currently, about 90% of her portfolio is in index funds, including an S&P 500, small-cap, mid-cap, and international fund, she said. And she doesn’t plan on changing her investing strategy anytime soon.

She wants new investors to understand that “you don’t have to know all of the stuff that’s out there about finance to be successful. … Most people just want a simple system where they know they’re doing the right thing, they ‘re not paying a ton of fees to do it, it’s going to work, and they’re going to be able to retire. That system is index-fund investing.”

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