The Easiest Way To Retire a Millionaire From The Stock Market
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My name is Alex and I love creating streams of passive income. My goal is to help you do the same.
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The Easiest Way To Retire a Millionaire From The Stock Market
In this issue of The Profit Zone, we’re going to be discussing a controversial topic in the new “gamified” investing era. Brokers like Robinhood & Wealthsimple have done a great job of turning investing into a game. While I applaud these brokers for making investing much more “fun” and accessible to retail investors, it seems like everyone is now glued to their phones trading stocks and trying to become a millionaire over night.
To add more fuel to the fire, new investors have seen the crypto market go parabolic over night making tons of people boatloads of money.
If you were one of the lucky ones to cash your lottery ticket on one of those “meme” stocks or shitcoins I’d love to shake your hand (or fist bump - have to stay COVID friendly). But while you were losing sleep over your incredibly risky “investment”, millions of other investors were generating a modest return through index fund ETFs and getting a good night’s sleep as well.
Here’s a live look:
Actively Managed Funds Vs. Passively Managed Funds: What’s Best For You?
Actively Managed Funds
Actively managed funds involve frequent trading and rebalancing with the goal of outperforming the market. It requires a high level of knowledge when it comes to market analysis, as fund managers use a bunch of different tools to squeeze out extra returns. Unfortunately, over the past 15 years, only about 37% of active stock fund managers have outperformed their benchmarks. Pretty bad right?
Pros of Actively Managed Funds
Responsive to volatile markets - actively managed funds give you the ability to move into more defensive positions like government bonds or cash when the market is volatile allowing you to prevent larger losses.
Exposure to options - actively managed funds often give investors exposure to advanced trading strategies like options that can allow the fund manager to earn some extra income or hedge their portfolio’s.
Tax friendly - a good fund manager will know how to use active investing strategies to offset gains for tax purposes.
Cons of Actively Managed Funds
Fees - actively managed funds average an expense ratio of about 0.71% as of 2020, which is significantly higher than passively managed funds and can eat into your profits long term.
Increased exposure to risk - some fund managers use leverage (or margin) to buy stocks, meaning you win big if they’re right, but if they’re wrong about the investment, your loss is twofold.
Bandwagoning - fund managers may want to take advantage of trends in the marketplace to help their funds outperform benchmarks. For example, companies like Zoom or Peleton were hot stocks during the pandemic but slowly died off as restrictions eased up. The issue with trend-based investing is knowing when the trend has hit a plateau, and that’s something no investor can predict correctly 100% of the time.
Passively Managed Funds
Passively managed funds focus on buying and holding quality companies for the long term, more of a hands-off approach to investing. This strategy aims to mimic the performance of large market indexes like the S&P 500 or NASDAQ. Another name for this type of strategy is couch potato investing because it’s as lazy as it gets.
My take: the majority of retail investors (you and I) should be implementing a passive investing strategy, similar to that of a passively managed fund.
Pros of Passively Managed Funds
Lower fees - with reduced trading, rebalancing and a more hands-off approach, passively managed funds offer much lower fees with an average of 0.18% for ETFs in 2020. I’ve even seen fees as low as 0.03% for some ETF funds from Vanguard.
Less exposure to risk - because passively managed funds track larger indexes, your fund will most likely hold hundreds (if not thousands) of companies, which helps decrease your portfolio’s overall exposure to risk.
Higher average returns over time - over a 20 year period, about 90% of index funds outperformed their active counterparts. If you’re going to be in the stock market for the long run, you should definitely look at passively managed funds.
Cons of Passively Managed Funds
It’s BORING - yes, passive investing is boring. But it works. You won’t see your account value go parabolic and make you a millionaire overnight. But you will build slow and steady wealth.
No alternatives when sh*t hits the fan - because this is a long-term choice, there’s no exit strategy when the market starts falling. A passively managed fund won’t implement options trading to hedge your positions or squeeze out some extra profits. You’re at the mercy of whatever index your fund is tracking.
My Personal Favourite Couch Potato Strategy: The S&P 500
The S&P 500 is one of the most-watched indexes across the globe and tracks the 500 largest companies (by market capitalization) in the United States.
Here are the top 10 companies by index weight in the S&P 500. When you buy into a fund, you become an owner of the following companies (plus 490 other large-cap stocks across the U.S.)
Apple Inc (AAPL)
Microsoft Corp (MSFT)
Amazon.com Inc (AMZN)
Alphabet Inc A (GOOGL)
Alphabet Inc C (GOOG)
Tesla, Inc (TSLA)
Nvidia Corp (NVDA)
Berkshire Hathaway B (BRK.B)
Meta Platforms Inc A (FB)
JPMorgan Chase & Co (JPM)
Crazy S&P Stat
If you had invested $100 into the S&P 500 in 1900, you would have about $10,574,973 at the end of 2022 (assumes all dividends were reinvested)
That comes out to a total return on investment of 10,574,873% or about 10% per year.
This investment result beats inflation during this period for an inflation-adjusted return of about 312,994% cumulatively, or 6.82% per year.
Source: S&P 500 Data
By looking at the chart below, you can get a good representation of how many times in the last 30 years the S&P 500 gave investors a positive return.
Hint: there’s a lot more green than red
Final Notes
With all that being said, the easiest way to invest and retire a millionaire is to buy passively managed index funds and chill. There’s nothing flashy about it. It’s boring. So boring in fact that when you tell your friends about your strategy they should fall asleep. But at the end of the day, you will be the one retiring a millionaire while they chase home runs.
Dear Paying Subscribers:
Scroll down to the very bottom. I’ve added a special section just for you. It’s a list of all my favorite index fund ETFs you might want to check out. Enjoy ;)
Some resources to help you make more money:
Money Mastermind - the “Money Bible”. Myself and 29 other expert creators teamed up to create the most all-inclusive 280-page finance book on the market. Over 100 topics about money including real estate, crypto, budgeting, dividend stocks, online business, and more.
The Complete Investors Accelerator Pack - everything you need to build a dividend portfolio that grows on itself. Learn more about dividend investing, how to analyze dividend stocks, what to do with your dividends and how to build a stream of passive income through the stock market.
The Molina Letter - the only product that’s helped me grow my Twitter account to 30,000 followers. Fill in the blank templates you can copy to help you create viral content with minimal effort. A big following gives you the key to creating products and making money online. There’s a reason why 500 people are subscribed to this letter.
TweetHunter - let the software do the tweeting for you. The only scheduler you’ll ever need. This tool makes me money in my sleep. Give it a try for free.
Hipster Budget Guide - having trouble saving money? Learning how to budget is your solution. This book will show you ways to save money you never even thought of. Worth every penny.
My 2 Cents - my other newsletter where I voice my personal opinions on life, money, and people. Beware: I have zero filter. But it might give you a good laugh.
