RECESSION ALERT: The 5 BEST Index Funds To Buy ASAP

What's up, Graham? It's guys here. So, I've noticed that people love to over complicate investing. Just buy into money puts expiring on May 12th over here, March in your portfolio. When the Fibonacci sequence falls below the 369-day moving average, you'll have a 50/50 shot of making at least five dollars.

Okay, but in all seriousness, despite what you might believe, investing is really, really easy and really, really profitable, as long as you just understand a few very simple practices. In fact, without exaggeration, this technique I'm about to describe outperforms 99% of all actively managed investments. Contrary to every other opportunity out there, the less work you do, the more money you make.

So, if this sounds absolutely impossible or too good to be true, just watch the video through to the very end, and I'll show you everything that you need to know about making money in the markets with the top index funds that you could buy today. Right after, of course, you destroy the like button for the YouTube algorithm if you haven't done that already.

[Applause] [Music]

All right, so thank you guys so much, and also a big thank you to public.com for sponsoring this video, but more on that later. Now, before we go into my top five favorite index funds, for anyone wondering how this works or why it's so effective, here's everything that you need to know in the next 60 seconds.

An index fund is basically just a big basket of stocks that you could buy into for one low price, so that you could own a small portion of everything. For example, if you were to go and buy every single individual stock in the S&P 500, not only would that probably take you a few hours, but it would also cost you over $92,000.

So instead, an index fund was created to track the entire market and simplify investing. Warren Buffett even said that a low-cost index fund is the most sensible equity investment for the great majority of investors. Index fund investing has outperformed even the best professionals over a 20-year period, meaning statistically you're going to make more money doing this than any other stock market investment that you could think of.

On top of that, this approach requires very little work. There's no need to research stocks or look at earnings reports; you'll get a lot of diversification, and as long as you could click a few buttons on a regular basis, you're done. Now, seriously, it's that easy. Not to mention, with index funds, there's an option for pretty much anything that you could think of—like there's one for the S&P 500, real estate, tech stocks, small caps, mid-sized companies, large international real estate, emerging markets, dividends, sustainability, and even cloud computing.

So, no matter who you are or what you want to invest in, most likely an index fund has you covered. And finally, the biggest advantage of them all is that these index funds cost almost nothing to manage, and since there's not a lot of overhead, that extra cost gets passed on to you as the customer.

So, with all of that jargon out of the way, these are my top six index fund investments that you could buy into today, and I'll break down why I like them, how much they cost, the advantage of each, and how much you could potentially make over these next 10 to 20 years.

First, we've got the classic Vanguard S&P 500 Index Fund, VFIAX. Now, just for complete transparency, almost every brokerage out there has their own version of the S&P 500 index fund, like Fidelity has FXSIX, and Charles Schwab has SWPPX, but since Vanguard is the largest, and they were the first to create the index fund all the way back in 1975, we're going to focus on them.

Since their index funds encompass pretty much everything that we're about to mention, in this case, VFIAX was created to track the entire S&P 500, which encompasses the top 500 publicly traded stocks in the United States. Buying into this one fund is basically the equivalent of owning the companies that make up three-fourths of the entire stock market's value.

The benefit is that by buying into the S&P 500, you're gaining exposure to the largest companies, which generally tend to be more established and therefore more stable. You're also making an investment that the US economy will continue to grow long-term, and throughout history, the US has shown to be extremely resilient and also extremely profitable.

Their top holdings include all the big names like Apple, Microsoft, Amazon, Tesla, Google, Nvidia, and Netflix, now all the way on the second page. Since its inception in 2000, it's annualized a 7.9% return, meaning a $10,000 investment 10 years ago would now be worth $35,000 today.

However, you might be asking yourself, "But Graham, this sounds too good to be true. What's the catch?" Because there's always a catch, and yeah, there are a few minor downsides you should be made aware of. First, if you want to buy into the funds, there's a $3,000 minimum deposit, and second, there's a 0.04% annual management fee, which is 0.01% higher than their ETF version, VOO.

And if that sounds confusing, let me explain. Generally, there are two types of ways to track the market: one is with an index fund, and the other is with an ETF. With an index fund, you could set up an automatic recurring investment so that you could dollar-cost average into the markets on a regular basis. You could buy in with a precise dollar amount down to the very penny, and everyone buys in at the exact same price at the end of each trading day.

But that comes at the cost of a slightly higher minimum investment, with the funds that usually cannot be transferred from one brokerage to another without a very hefty commission. On the other hand, ETFs trade just like a stock; there are no minimums as long as you can afford the share price, and you can transfer them between brokerages in the event you want to switch companies.

But unlike index funds, you cannot set up automatic recurring investments, and sometimes during periods of high volatility, the fund could actually trade at a higher value than what the stocks are worth. Or in other words, with an ETF, you're trading the basket that owns the stocks; with index funds, you're buying the actual underlying shares within the fund. It's a very small difference, but at the end of the day, for most people, either option is going to be good as long as you understand what you're buying into on a consistent basis.

However, as good as something like the S&P 500 is, it's still missing a large portion of the market, and that's what brings us to second: the Total Stock Market Index Fund, VTSAX. Unlike our previous example that only includes the S&P 500, VTSAX is designed to give you exposure to the entire US equities market, including small, mid-size, and large-cap stocks, where for one low price, you could own a small piece of 4,100 different stocks.

It also returned an average of 8.2% annually since it was started over 20 years ago, meaning over the last decade, a $10,000 investment would now be worth $34,000. The advantage of a total stock market index fund like this is that it's so comprehensive and so diversified throughout the US that this could literally be the only investment that you make from here on out if you believe the United States will continue to do well.

Now, of course, if you're thinking, "But Graham, how does this fund make more money than the S&P 500?" Because I see this one makes 8.2% and the other one makes 7.8%. What's up with that? These are great questions that I ask myself because you get so much diversification throughout the entire market. This fund contains smaller stocks that have a higher likelihood of seeing stronger returns, and when you place those in your portfolio, it begins to explain the slightly higher profit.

As proof of this, between 1980 and 2015, smaller stocks returned 11.2% annual growth on average while large stocks returned 8%. That's why it might be a good idea to expand your portfolio and diversify your investments a little bit more.

Of course, just like our last example, there is a $3,000 minimum deposit with VTSAX, and there is a 0.04% annual management fee, although you can opt for the ETF version, VTI, and that gets you all the diversification you would need without that pesky minimum investment.

Although the bad news here is that this only encapsulates the United States, and as we know, the world is a very big place. So, as a way to bridge that gap, we have number three, the Vanguard International Index Fund, VTIAX. This is an index fund that covers the stock market outside of the United States, including emerging markets, Europe, the Pacific, the Middle East, and North America.

Some of their largest holdings are the companies that we use on a day-to-day basis, like semiconductors, video games, Alibaba, Samsung, Nestle, Toyota, and so on. The advantage here is that as other countries grow and develop, their stock prices increase, and therefore, your money grows even further.

But here's the thing: over the last 10 years, international stocks have remained fairly flat, and throughout the last two decades, the United States has been on a roll, outperforming just about every other market out there. Although that is not guaranteed to continue happening, throughout history, there have been multiple times where international stocks have outperformed the United States, like throughout most of the 1980s and 2000s, and there's certainly a chance that that could happen again.

So, in this case, something like VTIAX has returned about 5% annually since its inception in November of 2000, and it'll pay you a dividend to roughly 3.37% annually. That means for every $10,000 you invest, you will get $337 a year in sweet, sweet passive income.

Although, just like the other examples with Vanguard, they do have the usual $3,000 minimum, and because international stocks take a little bit more to facilitate, they do charge a higher expense ratio of 0.11%. But there's also the ETF version, VEU, with a slightly lower 0.07% expense ratio. And even if it does underperform relative to the US, at least you're getting paid a slightly higher dividend in the meantime.

Although it doesn't stop there, because if you want some exposure to some slightly different companies, our sponsor public.com has a promotion where you could get a free stock worth anywhere from $3 all the way up to $1,000. Use the link down below in the description with the code GRAHAM. For those unaware, Public is an investing platform that helps people be better investors.

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So, thank you guys so much. Now, with that said, let's get back to the video.

All right, so after you got your free stock, we got number four, VIGAX. Even though on the surface it may appear very similar to the S&P 500, once you start digging deeper, you'll realize that this fund is all about identifying the fastest-growing companies that will maximize your profit.

Or in other words, if you took the S&P 500, got rid of everything that doesn't have high growth potential, you would be left with this. VIGAX contains a mix of 266 different companies, all geared towards the businesses which lately have done exceedingly well, and this fund has seen an annualized return of 8.6% since 2001.

Although by now it shouldn't come as a surprise that there is a $3,000 minimum, and there's a 0.05% expense fee for managing the fund. You could also go for the similar ETF, VUG, which has a slightly lower expense ratio of 0.04%. All of that could be yours for just $250.

However, even though in hindsight this fund would have made you a lot of money over the last 20 years, the next 10 years might not be the same case. Like you know the saying, past performance doesn't guarantee future results; well, that applies here. From 1997 through 2013, growth stocks like these did the worst out of just about every category.

Plus, if we go all the way back to 1992, VTSAX was often the clear winner. All of that is to say that if you build a portfolio based on the previous 10 years, you might not see the same returns as we have been in the future. So, even though this can be very profitable if things continue with the same trajectory, it's probably best to throw everything in a more diversified approach.

And that would be five, the Global Stock Market Index, VTWAX. Basically, if you took everything that I just mentioned, smash it all together, add in emerging markets, and sprinkle on every little bit that you could possibly think of, that would be this. It gives you exposure throughout the global stock market with a portfolio of over 10,000 different stocks.

So, this is pretty much as diversified as you could possibly get without factoring in that LEGO set investment that you've been eyeing on eBay. Their top holdings include the likes of our US-based companies while you also get exposure to some of the largest international stocks at the exact same time.

Now, even though this fund was just recently started in 2018, over the last year, it's returned just over 6%, and throughout the last three years, it's averaged over 13%. The downside, as usual, is that there is the same $3,000 minimum investment, and there's a 0.1% management fee, which is one of the highest options on the list.

However, their ETF equivalent, VT, comes in at just 0.07%, and you would be getting almost the exact same thing. Personally, I see this as a great choice if you want exposure to everything without leaving any stone unturned. Most likely, this one is the one for you. Of course, the downside here is that you might be leaving money on the table if the United States continues to outperform and deliver these outsized returns, which is entirely possible.

But if you want to take a more diversified approach, this one certainly works. And finally, I thought it would be fun to add one more to the list, and that would be the Vanguard Real Estate Index Fund, VGSIX. This is an index fund that invests in a mixture of real estate investment trusts, where instead of owning a fraction of a stock, you're owning a fraction of a company that owns and operates residential and commercial real estate.

It's basically the equivalent of being a very, very, very, very, very small owner of healthcare facilities, hotels, retail stores, warehouses, and everything else, all for just $147 a share. It also includes a dividend of 2.9% a year, so no matter what happens to the stock price, you're getting paid back a small portion of your money.

However, the bad news is that they do charge a 0.12% expense ratio, which is the highest on the list, but this one also has the highest returns, averaging over 10% annually since 2001. Now, of course, with interest rates increasing, it's yet to be seen just how much of an impact this is going to have on real estate values, so this fund could end up going down.

But this could also be a great way to gain some exposure to the real estate market without actually going and buying the real estate yourself. And when it comes to myself personally, I invest in a mixture of index funds, so that way I'm diversified across almost everything.

I'm being serious here: if all you did was just buy into a well-diversified index fund on a regular basis over 20 years, you would outperform the vast majority of actively managed funds, and you would put yourself in a great financial position to make as much money as possible.

And if you found this video helpful, it would be helpful to me if you subscribed for the almighty YouTube algorithm. So, with that said, you guys, thank you so much for watching. Also, feel free to add me on Instagram. Thank you so much for watching, and until next time.