Welcome to the first edition of the newsletter! Today, we're going to start with a simple area you've heard all about one too many times: index funds. But, like most people, many could not explain what they do. Fear not. Unlike many other investment choices, if you don't have that much knowledge on index funds, it won't make or break you. That's the beauty of it: it takes the heavy lifting from your hands.

Let's max out your financial knowledge!

What is an Index Fund?

It's a fund designed to mirror a specific benchmark. Sometimes I call this the "monkey see, monkey do" fund. Unlike a traditional mutual fund, its intent is not to beat a specific benchmark but simply copy it. Now, why is that special? They are simply practical for most investors.

There are four areas they shouldn't overlook:

​→ Diversification ​

Because these funds are essentially a basket of multiple securities, you spread out the risk by not overconcentrating into one individual stock or bond.

​→ Costs ​

Since it merely mirrors an index, there isn't much work to do behind the scenes with less management or trading. Therefore, it has a low expense ratio, which is an annual fee to cover the fund's costs. As your portfolio increases, these costs make a massive difference!

​→ Tax Efficiency ​

Fewer tax transactions are being created because there is less change happening inside fund (low turnover ratio). As a result, it's viewed as more tax-efficient than a standard mutual fund.

​→ Performance ​

Many active fund managers have underperformed their benchmarks over the last 20 years. As it turns out, it's incredibly difficult to beat it, even for portfolio managers! The performance of an index fund is not contingent on how good you are at beating the market but on how long you are willing to spend time in it. It doesn't try to beat the index; it simply mirrors it.

Overall, while everyone's situation is different, and many investment choices should be considered, index funds are an excellent choice for average investors looking for a practical way to build wealth.

Index and chill.