DUFFMONEY and index investing

Index investing suits DUFFMONEY as it is passive and stress free. It is very much set and forget (Set and forget).  This proven method will help you to build your wealth and give you financial freedom. This is not easy. It takes dedication and discipline.

DISCLAIMER – I am not a financial expert and am not offering expert advice. This is just a way of investing that suits me.

Up until 2018 I had no financial plan in-place. I was heading for no retirement or a very poor retirement. It’s easy to live for today and forget about what happens tomorrow or a few years down the line. DUFFMONEY is about living for today and planning for the future. After all, life is about balance.

Vangaurd Index funds

Before going any further, I would recommend you do your own research. I t is very important to get some financial literacy and to understand your relationship with money.

Index Investing – made famous by John Bogle (founder of Vanguard). This is where you track the stock market. You have a small slice of several companies within your fund.

After reading a couple of books on money, I stumbled across John Bogle and his excellent book, The Little Book of Common Sense Investing.

With this book, I learned how to avoid heavy costs charged by some fund managers. This isn’t the case with Vanguard as the costs are very low. Vanguard was founded in the USA by John Bogle and offers low-cost index-tracking funds. The book also gave me the knowledge to understand index investing.

Index-tracking is a way of tracking the entire stock market. If you invest in the US in the S+P 500 (basically 500 of the biggest US companies) you are aiming to match the performance of the entire market. If the S+P 500 return’s 7% in a given year, your fund should return 7%. Your Vangaurd fund manager will have picked several of the top performing companies within the S+P 500 – again a small slice of several companies.

DUFFMONEY’s experience of index investing

My Life Strategy 80 20 fund is made up of 80% shares and 20% bonds. This is fairly high risk but I intend to invest for a long time so am happy to ride the inevitable ups and downs. To determine your risk tolerance, speak to a financial advisor.

Or do what I done and do a bit of self-education. Read the books, listen to the podcasts and watch the YouTube videos. All the information you need can be accessed for free online – you just have to be driven enough. Put the graft in now and you will thank yourself when your having a few beers on the beach in Benidorm. Or is that just me?

Let us have a look at how my LS 80 20 fund has performed over the last 12 months. See below for a summary:

  • LS 8020 May 2020 to May 2021
  • Current fund value – £23,800
  • Rate of return – 20.93%
  • Current contribution – £900 pcm

That 20.93% rate of return is much better than the less than 1% I would have achieved in a high st bank. But I’m under no illusion that this will be maintained. It’s possible but very unlikely.

What would happen if this return was maintained for the next 12 years? Well, I would be a very happy 50-year-old!

If the 20.93% was maintained for 12 years, I would have £857,779 in the vanguard pot. That is IF the interest was 20.93% every year and IF I invested £900 pcm. Two very big Ifs if I’m being honest.

I know this is VERY hypothetical, but I want to demonstrate compound interest. In the above example, the total deposit is £153,400. The interest earned is £704,379 and this demonstrates the power of compound interest.

Let us be a little more realistic. In reality, I will more than likely earn 7% per year over the next 12 years. If you read DUFFMONEY regularly, you will know that I am convinced that 7-8% is achievable if you have a diversified fund and track the markets. This is from reading books like How to own the world, by Andrew Craig.

With a return of 7% every year (on average), and after investing £900 pcm, I would end up with a pot of £257,220. This is with deposits of £153,400 and interest earned is £103,820. Although on a lesser scale, this still demonstrates the power of compound interest.

What to do

First of all, try to understand your relationship with money. You can see how I done it at DUFFMONEY with some much needed Money Mindset.

Then get some financial literacy and you can do that with books or podcasts. Basically, anyway you can that will absorb enough information. Then you can go and make educated investing decisions.

Finally look into index investing. It’s not get rich quick which most people prefer but I believe it will add to your long-term wealth. My 20% return might just grab your attention. But the more you look into it you know that it will be more than likely 7-8%. This is depending on which fund you decide to go with.

Good luck! My sincere hope is that you can learn from DUFFMONEY and it pushes you to go out and do your own research. And you go out and get some financial literacy that will help you put a financial plan in-place.   

Book of the week: How to Own the World, by Andrew Craig. This book will help you to decide where to put your money. It is designed for the UK investor and is well worth a read.

For a hard copy visit the excellent Imagined Things Bookshop: https://imaginedthings.co.uk/ 

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