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A chap called Jack Bogle died last week, at the age of 89. You may not have heard of him. He founded a company called Vanguard and introduced the world to ‘index funds’.
An index fund is the best way to invest in the stock market. Essentially, when you put, let’s say £1,000 into an index fund, you’re actually buying shares in lots of different companies. The S&P500 is one example of an index fund. It covers the 500 biggest companies in the USA (Apple, Facebook, Amazon etc). So if you were to put £1,000 in the S&P500, you’d own a little bit of each of these 500 huge companies.
That’s great news. It means you never have to worry about what company to buy stocks in, and your money isn’t dependent on the profitability of any one company. Instead, your money is spread out between these 500 companies and overall, because the stock market always goes up, you never lose money over the long term.
Those two ideas are worth repeating. (1) The stock market always goes up. (2) You will not lose money over the long term.
This might seem very counter-intuitive if you’re not familiar with how stocks work. Most people who hear the phrase ‘stock market’ immediately think of stuff like the 2008 crash, and probably know some random uncle who ‘lost a lot of money in the stock market’.
But the stock market is a great way to make free money, and investing in index funds is the best way to make this free money over the long term without much risk.
Explaining this in detail is probably beyond the scope of this post, but if you’re at all interested in making free money, definitely read this article: Mr Money Moustache – How to make money in the stock market. It explains the basics of how stocks work, why the market always goes up, and how you can get started with investing in it.
Mr Money Moustache is one of my favourite blogs of all time, and when I discovered stock market investing a few years ago, I binged every post on the website and learned a huge amount. In fact, since I started investing in stock market index funds in 2015, I’ve made over £10,000 of ‘free money’ – ie: my money has been sitting in the S&P500 generating more money without me having to do any work. That’s pretty magical.
The idea of ‘investing’ and the phrase ‘stock market’ often cause people to quake in their boots. But if we look beyond the media hype about stock market crashes and people jumping out of windows on Wall Street, we find that the maths is pretty simple, and by following some basic rules anyone can make ‘free money’ in the stock market – even you 😁
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