The Billionaire's Advice
Warren Buffett, worth over $130 billion, has given the same investing advice for decades: "Put 90% of your money in a low-cost S&P 500 index fund."
In 2007, he bet $1 million that a simple S&P 500 index fund would outperform a basket of hedge funds over 10 years. He won decisively. The index fund returned 125.8% vs. the hedge funds' 36%.
If the greatest investor alive recommends index funds, maybe we should listen.
What Is an Index Fund?
An index fund is a basket of stocks that mirrors a market index. When you buy one share of VTI (Vanguard Total Stock Market), you instantly own a tiny piece of over 4,000 companies — Apple, Microsoft, Amazon, Tesla, and thousands more.
Instead of trying to pick winners, you own the entire market.
Why Index Funds Win
1. Diversification — You're never dependent on one company's success 2. Low fees — Index funds charge 0.03-0.10% vs. 1-2% for active funds 3. Tax efficiency — Less trading means fewer taxable events 4. Consistency — The S&P 500 has averaged ~10% annual returns since 1926 5. Simplicity — No research, no stock picking, no timing the market
The Math of Fees
A 1% fee difference might sound small. It's not.
$10,000 invested for 30 years at 10% return:
- 0.03% fee (index fund): $169,058
- 1.00% fee (active fund): $132,677
That "small" fee costs you $36,381 — more than three times your original investment.
Getting Started
- Open a brokerage account (Fidelity, Schwab, or Vanguard)
- Choose a total market fund: VTI, VXUS (international), or a target-date fund
- Set up automatic monthly investments
- Don't look at it daily. Check quarterly at most.
- Never sell during a downturn
The Y2I Recommendation
For young investors (18-28), we recommend:
- 80% US Total Market (VTI)
- 20% International (VXUS)
As you learn more, you can add individual stocks, REITs, or bonds. But this foundation will serve you for decades.
The best time to start was yesterday. The second best time is today.