But that stuff is boring and you may already know it, so let’s jump to what investing actually is

“Investing” in the broadest sense just means using your money (read: cash) to buy assets that you think will go up in value. You can invest in real estate, the stock market, and a lot of other things.

Today, we’re going to talk about stock market investing in particular (as distinct from day trading and other arbitrage attempts), as I believe that has the lowest barrier to entry. I can’t start a rental property empire right now with $20 and an internet connection, but I can use those two things to start investing in the stock market in the next 20 minutes.

What’s the stock market?

The stock market is just a big collection of companies that have decided they want money from the public in return for the promise that they’ll produce profits they’ll share with the public.

In order to be offered on this thing called the stock market, a company has to “go public”—which means revealing a lot of intimate details about how it’s spending and earning, how much it’s paying its executives, and more. Companies want to look good to the public so more people will say, “Yep, I’ll give that company my money in exchange for a small piece of it, because I think it’s going to do well and I’ll get a good return on my investment.”

Going public is a big deal, and it happens in something called an “IPO,” or “Initial Public Offering.” It’s the company saying, “All right, world—you are now able to exchange your dollars for a small piece of me, and you should exchange your dollars for a small piece of me because I’m going to produce profits that’ll make the piece of me that you own more valuable over time.” Like NFTs, but you know, actually profitable.

IPOs aside, that’s why the value of a stock goes up—because that stock (or rather, your “share” of the stock) represents a small piece of a company that’s theoretically creating real value in the world and generating real income.

But just like people, companies die

Even good companies may eventually die, because the world changes, the public’s needs change, and hopefully, innovation keeps pushing us forward.

Back in 1896, this dude named Charles Dow selected a group of 12 leading stocks from American industries to create his index. You’ve probably heard of it: the Dow Jones Industrial Average.

Today, there are 30 stocks in the Dow Jones Industrial Average, or DJIA.

Do you know how many of the original 12 are still in it? None. Most of the stocks in it today didn’t even exist when he started. Things change.

But that’s the cool thing about indexes (or indices): They adapt, too. Since they’re prescribed to include only stocks that meet certain requirements (like size, or growth, etc.), the holdings in an index change as the companies do.

For example, if I created an index that was supposed to measure the 10 biggest companies in the US based on profits, as soon as the tenth company was usurped by another one, it would be replaced on my index.

You’re saying “index” a lot, Katie—is this where index funds come in?

An index fund is a collection of stocks designed to track one of these indices. The index fund allows you to invest in a certain index, like the DJIA.

The benefit of using something like an index fund is that you’re saying, “I don’t care what the top 10 biggest companies are, I just want shares of the top 10 biggest companies at any given time.” Just like above, as those companies change on the index, so too does what you own.

Compare that to deciding, for example, that you think one particular company is going to do well. You might be right, but you also might be wrong. If you invest in a company that ends up not producing the profits they say they will, you’d be disappointed in the return on the dollars you handed to the company.

You can probably connect the dots now about why index funds are so popular. They eliminate a lot of guesswork. Popularized in the 1970s by the founder of Vanguard, John Bogle, the index fund is a dope invention and John Bogle is considered a genius.

Without getting too deep into the weeds today, it’s probably useful to mention that—in general—only about 10% of investors who try to actively beat the performance of major indexes like the S&P 500 actually do so over any 15-year period.

(The S&P 500, or “Standard & Poor’s 500,” is an index that tracks the 500 biggest companies in the United States. It’s a popular one, especially in the last decade, as it’s done very well.)

And while I’m not telling you that you shouldn’t invest in individual stocks if you want to, I am telling you that almost 90% of professionals who do it for a living (to try to outperform the total stock market) fail. Do with that information what you will.

Why does the stock market tend to go up over time?

A stock is just a small piece of a company.

It’s not just a piece of paper or numbers on a screen. A stock represents a real company producing real value and generating real income.

It’d be like if I started Money with Katie and asked you, dear reader, to invest the first $100 used to pay for the website. Let’s say we split ownership of the company, 50/50, so you owned half of Money with Katie. There are two shares of stock, valued at $50 each.

In Money with Katie’s first year of business, it made about $10,000.

You put in $50 to own 50% of Money with Katie, and it generated $10,000 in revenue, meaning you’re entitled to $5,000.

Not bad, huh?

As long as Money with Katie makes money, so do you.

But if it lost money—if it never made a dime—your $50 is worthless.

That’s why (rather than investing all $50 in Money with Katie’s stock) you’d probably be wise to spread that $50 around over, say, 50 different personal finance blogs, giving them each $1.

Of the 50, at least a couple are bound to do well, so your “shares” in the successful ones will do well.

Actionable advice to start investing today

Some people try to day trade individual stocks to earn a profit on a sort of arbitrage—I’m not advocating for that, and I wouldn’t call that “investing.” Instead, set that shit on easy mode. Buy and hold low-cost index funds for the next 30 years. 

I know it’s incredibly annoying to have someone tell you, “Okay! Cool. Now go buy some index funds,” and then walk away without another word.

People go to school and spend their entire careers figuring out which funds to invest in, so I realize that’s not super useful.

That’s why I always recommend people consider investing with a brokerage firm or roboadvisors (Betterment, Wealthfront, M1 Finance, etc.), where your only “job” is to deposit cash, and an algorithm determines how to invest it based on your goals. It couldn’t be easier—and you get a low-cost, diversified portfolio of exchange-traded funds (ETFs) that represent the US stock market, international market, fixed income, emerging markets, and more.

This provides exposure to other categories that outperform the S&P 500 sometimes (yes, really) and it’s likely to your benefit to diversify beyond large, US companies—check out the Callan Periodic Table of Investment Returns if you’re skeptical, where you’ll see that in the last 20 years, the S&P 500 was only the top performer 15% of the time.

What’s an appropriate amount to invest?

Remember how we noted those ducks we wanted in a row prior to starting? If you’ve already eliminated all high-interest debt and your emergency fund is straight chillin’ on the sidelines, it’s wise to focus your future “saving” efforts (and excess cash flow) on investing so you can build wealth. 

You may also like these posts:

• Why You Probably Have Too Much in Your Emergency Fund

• Why Index Funds & ETFs are a Better Bet for Successful Investing

• Setting Up My Perfect Financial System: Money Mapping

• How Your Investments are Taxed

Any time I open the “Roth vs. Traditional 401(k)” can of worms, I’m inevitably met with one resounding piece of pushback:

“But what if I’m in a higher tax bracket in retirement?”

This is the predominant argument in favor of going all in on all Roth: That (somehow) we’re all going to be spending more in our golden years than we’re earning now in our careers.

Today, I’m going to argue something very simple: It’s almost impossible for that to be the case, and I’ll show you why.

Usually, this question is the result of three (very different) belief systems and circumstances:

1. Those who don’t yet understand how their tax bracket is determined in retirement (I’ve talked to an astounding number of people who believe their last working salary determines their tax rate for the rest of their life)

2. Those who are unreasonably optimistic about their future returns but haven’t actually sat down to project the numbers

3. Those who are in a very low marginal tax bracket today, like 10% or 12%, but have a reasonable belief that they will spend in a way in retirement that will eclipse this (this is really the only mathematically sound rebuttal, as you’ll see shortly)

So let’s start with the foundation: How your money is taxed in retirement.

Before we dive headfirst into this rabbit hole, I want to state something explicitly: Any time we’re running loose projections for decades into the future, they become nearly meaningless because – as we extend our timeline – we extend our chances that some crazy bullshit could happen. That said, conceptually, I think this exercise is helpful, and I don’t think we should throw in the towel on trying to understand our best move just because we’re ‘planning’ for something that’s pretty far into the future.

How your money is taxed in retirement

Throughout your working life, you’re probably accustomed to the IRS coming with a hatchet for your earned income. Your noble benefactor (Corporate America) agrees to pay you $60,000 per year in exchange for 2,000 hours of your life, and you humbly agree.

Then, Uncle Sam skims his chunk off the top, and you take your tax haircut and go on your merry way.

(Your federal “tax haircut” on $60,000 is $9,806 in 2025, for the record.)

But your money in retirement isn’t based on what you earn, because you’re (theoretically!) not earning anything. This is where the folks who own 412 rental properties and mega-pensions will “BUT!” the shit out of this article, but stick with me. For most, retirement income is taxed based on something else:

What you spend.

You’re taxed in retirement based on what you spend, not on what you earn

Technically, your only “income” comes in the form of withdrawals from your own retirement and brokerage accounts. Theoretically, you won’t be withdrawing more than you need to spend (because there’d be no point to take the money out otherwise).

Of course, if you work for a really long time and make a lot of money, it’s possible your social security payouts will be decent – but that’s hard to project from our vantage points now, 40 years away.

Some of these accounts (like your trusty Traditional 401(k) steed) are taxed like income, while others are taxed in a more favorable capital gains tax bracket (the taxable brokerage account).

It’s likely you’ll pay 0% tax on your long term capital gains on some or all of your withdrawals from your taxable account, thanks to the way the brackets are set up. (Some will argue that the 0% bracket might be hacked away; to that, I say, it’s probably a futile effort to plan based on speculation around the tax code 40 years from now.)

But before we digress too far from the original point: You’ll only be taxed more in retirement if you’re spending more than you’re earning now.

If you’re like, “Oh, I only make $80,000 now, but I plan to live an LLL in retirement: A Large, Lavish Life, baby!” Let’s pump the brakes, L^3.

This is the perfect segue to addressing the second piece of pushback: that you’re going to (somehow) be able to afford a crazy luxurious life in retirement that thrusts you into a higher tax bracket.

Why you probably won’t be in a higher tax bracket in retirement

It all comes down to this very simple truth:

In order to have enough money in retirement to live large, you have to invest a shit ton of money.

Why? Because the only way to grow a humongous nest egg (one that’s capable of spinning off large sums of cash in returns annually) is to fill it with a shit ton of cash, and preferably early in life so it has time to compound parabolically (which isn’t impossible, to be sure, but certainly on the ‘unlikely’ side of average when you consider that most people hit their peak earning years between 35 and 44).

And in order to invest a shit ton of money, you have to make a shit ton of money (either that, or work for a full 40 years).

And what’s true about people who make a shit ton of money?

They’re in a high tax bracket.

The paradox is this: If you’re in a lower tax bracket now, the only way for you to be in a higher tax bracket in retirement is by spending a ton of money after you retire – but you won’t have a ton of money to spend unless you’re earning (and investing) a lot now. And if you’re earning (and investing) a lot now, you’re likely already in a tax bracket that you’ll have a hard time eclipsing with spending later.

(Either that, or living on very, very little and investing the healthy majority of an average salary – and at that rate, behaviorally speaking, it’s unlikely you’d even want to flip the switch in your golden years and suddenly change your entire lifestyle.)

Does your head hurt? Cool. Let’s add some numbers – that’ll help!

The reality of using your 401(k) in retirement

The sad reality is that it’s going to prove nearly impossible to retire on only a 401(k). If someone contributed the maximum ($23,500 in today’s dollars, adjusted for inflation every year) to a 401(k) for 25 full years – it only results in ~$1.6M, assuming average 7% annual returns.

$1.6M sounds like a shit ton of money, but after 25 years, the purchasing power of those #dollarz will be a shadow of their former selves.

To give you a sense of just how shadow-y, the equivalent purchasing power of spending $50,000 today will cost $128,000 in 25 years from now, assuming 3% average annual inflation.

Put another way: To live the same type of life that $50,000 buys you today, you’d need $128,000.

Since the widely accepted safe withdrawal rate is 4%, in order to support $128,000 in spending money per year, you’d need ($128,000 * 25) $3.2M. 

There are two (obviously) shitty things about this reality: 

1. Most people are not contributing the maximum to their 401(k), and for most Americans, that’s the only account they’re contributing to.

2. Most people are concerned about paying too much in taxes when they’re in retirement or “being in a higher tax bracket,” but the reality is that many of us will not be able to afford to withdraw enough each year to be in a tax bracket that’s even close to what we’re in now. There’s a reason people believe Millennials are facing a retirement crisis.

Moral of the story? It pays to know how much your life costs and what it’ll cost to support that life indefinitely.

More importantly, it pays to know how you’re (likely) going to earn, and make “Traditional vs. Roth” decisions accordingly. Let’s look at a few different scenarios:

• Average earner who works for 25 years

• Average earner who works for 40

• High earner who works for 25

• Person who goes from average to high earner within the first decade of their career, but keeps their lifestyle the same

An example with an average earner over 25 years

So let’s take our average earner: Someone making $60,000 per year.

We’ll say they start work at 22, earning $60,000, and receive a 4% raise every single year.

Let’s also pretend that their lifestyle costs $40,000 per year ($3,333 per month), and it goes up 3% per year for inflation.

Here’s how much they’d accumulate over their working life (the far right column, in blue):

The “Annual Savings” column shows how much this person saved each year – they’re nowhere close to contributing the maximum to a 401(k), especially in the first 14 years.

This individual probably hypothesized (at least, in the beginning of their career) that they’d definitely be in a higher tax bracket in retirement.

But remember how we’re taxed? We’re taxed based on how much we withdraw (read: spend), because we no longer have an income. Our withdrawals from our 401(k) become our income.

At $1,075,724, the safe withdrawal rate is $43,028 per year. That’s a problem, because you’ll note that – in 2045 – this person’s annual spend is $81,303 (thanks, inflation).

In reality, this individual would not be able to afford to retire yet, because they’d only be able to cover roughly 53% of their annual expenses (assuming no social security or other sources of income, like a pension).

That means that – at no point in this person’s career, even in year 1! – were they in a lower tax bracket than they would be in retirement, if they retired at this point (though, as we’ve noted, they wouldn’t yet be able to).

With a (relatively) short timeline of 25 years and an average income, it’s almost impossible – even if your final salary is $153,378.

So what happens if we extend that timeline to 40?

An example with an average earner over 40 years

Well, 39 – for some inexplicable reason, I set this spreadsheet to project 39 years into the future instead of 40. This is why I’ll never work for Goldman.

But here’s how things would change if the timeline extended through (almost) a full 40-year working life, with the individual retiring at 62.

If this individual works for the same 25 years and only increases their spending by 3% per year in the same way, they’ll retire with $7.7M.

(Maybe the point of this article should be: Increase your income.)

The safe withdrawal rate on $7.7M? $308,000.

Now, the gap between this person’s annual expenses ($81,000) and the amount they can withdraw ($308,000) is quite wide. Moreover, $308,000 has (when adjusted for 25 years of inflation) the equivalent purchasing power of about $156,000 today.

You could argue that there are a few things about this scenario that may not stand up to the “practicality test” of how most people behave in the real world:

• Most people making $150,000 don’t live on $40,000/year.

• …and those who do are likely doing so because they intend to retire early, which means…

• …they’re probably not going to work for a full 25 years. This individual would technically reach FI at $1.3M and be able to retire in year 10, after which point they could safely pull the ripcord well before accumulating $7.7M.

But let’s pretend they didn’t! Let’s stay true to our mathematical #roots here and pretend that we do have someone making $150,000, living on $40,000, and working for a full 25 years, finishing their career with a salary nearing $400,000.

You may look at this person and say, Well, shit, they can withdraw $300,000 per year! They didn’t make $300,000 per year until Year 19… Which means they were in a lower tax bracket for the first 19 years of their career, right?

Close, but I think the important thing is the inflation-adjusted value of that $300,000 per year withdrawal. Remember? It’s the equivalent of $156,000 today, which means it stands to reason that $308,000 in the future will be taxed the way $156,000 is taxed today (again, thanks to inflation).

And how long did it take them to be in a higher tax bracket than $156,000 per year? Year 2. It took them one year of work to eclipse the (seemingly insane) retirement tax bracket triggered by an outrageous $300,000/year drawdown, made possible by the fact that they made $150,000/year and lived on $40,000.

Even a high earner who lives on very little, works for 25 years, and amasses $7.7M of wealth would have a hard time getting into a higher tax bracket in retirement

Someone whose lifestyle is conducive to spending more than they earn is not going to amass the type of wealth necessary to spend that much in retirement. There’s really only one instance that I can think of where someone would potentially find themselves in a “higher tax bracket in retirement” scenario, and it’s a perfect segue to our third and final piece of pushback: You’re in a really low tax bracket right now (10% or 12%) but believe you’ll be in a much higher one for the majority of your career.

That is to say:

People who start with a low or average salary, but become high earners relatively quickly – and don’t inflate their lifestyles to match – may be in a lower tax bracket in the very beginning of their careers before their salaries balloon.

Going from an average income to a high income isn’t enough – because remember, the amount we can spend in retirement is based fully and completely on (a) how much we saved and (b) for how long.

If you spend 90% of your income on $60,000/year and also spend 90% of your income on $150,000/year, you’re no better off.

Let’s take a look at this scenario.

An example with an average-to-high earner for 25 years (who doesn’t inflate their lifestyle)

Let’s assume this person is an average earner for the first 5 years of their career and then takes a rocketship to the 24%+ marginal tax bracket.

If you believe that your early salary is going to double or triple relatively early in your career (which can happen!) but you plan to continue to live a similar lifestyle, the math would indicate there’s a good chance you’ll be in a higher tax bracket in retirement.

But if you inflate your lifestyle? Say, you start spending $6,000/mo. instead of $3,333 when you get your big fat raise? Let’s see:

Contributing the maximum to a 401(k) every year for 25 years likely won’t be enough to retire if that’s all you’re doing

That is, unless your needs are very conservative.

It’s more or less mathematically impossible for someone to find themselves in a position where their 401(k) is “too big” if it’s the only account they plan to live on, because they won’t be able to safely withdraw the entire amount they need from it without depleting it too quickly. This makes the concern around “being in a higher tax bracket in retirement” very unlikely, barring an environment where there are sustained high returns and abnormally low inflation for decades (which, like… that would be a GREAT ‘problem’ for all of us!).

The 401(k) alone will not be enough – you’ll need income from other sources, like Roth IRAs or taxable accounts.

And that, my friends, is where the zesty, terrifying rubber meets the road. 

Because you can claim up to $96,700 of long-term capital gains in 2025 (for married filing jointly) in today’s dollars at a whopping 0% tax rate, you can structure your drawdown from your various accounts such that you’re converting smaller chunks from your 401(k) each year. That’s why I feel so passionately about tax-deferred accounts and delaying Roth conversions until you’re in total control of how that tax gets paid – because while I hear the Roth arguments in theory, in reality, it’s relatively easy to limit (or completely eliminate) your tax liability later in life when your earned income is zero (or close to zero).

All right, time to dissipate the painful, bleak dark cloud I’ve just ushered in – that won’t be you, right? Because you’ve got time and Money with Katie on your side (but in all seriousness, make sure you adjust for inflation). 

One of the most interesting things about blogging about personal finance (and, by extension, creating an Instagram presence that just screams, “Send me your deepest, darkest fears about investing!”) is that the way questions are phrased reveals a lot about the deep misunderstanding most of us have about how investing actually works.

For example, a question I receive more than I’d like to: “Should I invest in my 401(k) or index funds?”

There’s absolutely no shame in not understanding—after all, when would you have learned this stuff unless you took an active interest?

But 401(k)s and index funds are not an either/or. That’s like asking, “Should I eat fruit or strawberries?”

The strawberries are INSIDE the “fruit” category. I recently posted a picture that explains how all these terms are related:

The good news is that people are asking about index funds, which are, in my opinion, one of the absolute best ways for any individual investor to do really well in the stock market.

Jack Bogle, the founder of Vanguard, invented the index fund in 1975 and pretty much immediately pissed off and amused every big wig on Wall Street.

The premise of an index fund—that you aren’t trying to purchase individual stocks, but instead buying a fund that tracks an index—was a wild idea at the time. At first, people ridiculed Jack for suggesting investors should stop looking for the needle in the haystack and instead buy the entire haystack. How could that possibly compete against making educated guesses at which stocks would perform best? As you can probably guess, his critics promptly shut the hell up after a few years of his index funds crushing.

Why is it so hard to pick individual stocks? It has a lot to do with the fact that our perception of successful companies is very relative and skewed to our own present-day experience and biases.

Only one of the original 30 companies listed on the Dow Jones Industrial Average is still around, General Electric. Companies, industries, and the world around them changes—and usually, those changes are gradual, complex, and not obviously correlated to one another.

Once a company becomes an obvious “winner” as defined by its stature in the market, most of its explosive growth has already happened: Someone who purchased $1,000 worth of Apple stock in the 1990s when all the pundits were claiming it was a loser that would never get asked to prom saw some serious returns.

But someone who buys Apple today? Apple already popped off. The ugly duckling already had its glow-up. Nobody’s laughing at you if you buy Apple now. Sure, you’ll see growth, but will it compare to the get-rich-quick windfall that nerds in the 90s predicted when Wall Street was scoffing? Unlikely. Apple was a shooting star.

…and basing your investment strategy on your ability to seek out shooting stars is probably going to net you majority losses. Things change.

“Consider that in the 1960s the U.S. government was seriously considering (it never happened) the forced breakup of General Motors. GM was deemed so dominant and powerful that no other car company could compete. This is the same GM that survives today only by the grace of a huge bailout by that same government. On the other hand, back in the 1990s the smart money was betting Apple might not survive. As of this writing, it is the single largest U.S. company as measured by market capitalization. Today’s stars are tomorrow’s wrecks. Today’s fallen are tomorrow’s exciting turnarounds,” writes J.L. Collins in his 2016 book, The Simple Path to Wealth.

Why is it so hard for some of us to accept that picking individual stocks can ultimately net losses over time, or underperform index investing as a whole? Because we’re prideful and stupid. Just kidding (about the second part). The people I see struggle with this the most are the really smart ones: It’s hard to wrap your big brain around the fact that you’ll do better by doing nothing. It flies in the face of the way we’re taught to approach every other aspect of our lives – but investing isn’t like the other aspects of your life.

Being a successful investor comes down to a few counterintuitive principles: Being okay with boredom 90% of the time (slow growth over time) and terror 10% of the time (March 2020 COVID plummet), coupled with extreme patience.

Index investing isn’t exciting—it’s generally stable.

So what’s investing anyway?

In its simplest form, investing means you’re buying a little piece of a company. You’re not just buying a piece of paper or a number on a screen; you’re not dumping your money into an account where you’ll earn a guaranteed interest rate (another weirdly common misconception). When you invest, you’re becoming a part owner of a company—or hundreds, or thousands of them, depending on what you buy—and as that company makes money, so do you. That’s really all there is to it.

If that company loses money, so do you. This is the nauseating downside to the Apple narrative: It’s the reason individual stock investing is a double-edged sword. There are other companies that have gone from market darling to out of business just as quickly, turning whatever amount you invested into a gut-wrenching $0.

That’s why index funds like those that track the S&P 500 can be so great: Because you own pieces across the largest 500 companies in the United States, you own an index that automatically filters out certain companies, without you doing a damn thing.

Say you own an S&P 500 index fund (like VFINX, the Vanguard S&P 500 index fund, or the ETF version, VOO), you can own pieces of:

• Apple Inc. (AAPL)

• Microsoft Corp. (MSFT)

• Amazon.com Inc. ( AMZN)

• Facebook Inc. (FB)

• Tesla Inc. (TSLA)

• Alphabet Inc. Class A Shares (GOOGL)

• Alphabet Inc. Class C Shares (GOOG)

• Berkshire Hathaway Inc. (BRK.B)

And about 490 more. As companies grow and become successful, they can automatically get added to that index. As they start to shit the bed and shrink, they can be dropped— automatically.

Some financial gurus, like Paul Merriman, take the opposite approach and promote small-cap value index funds (in other words, suggest owning index funds that comprise hundreds of the smallest companies), the logic being that every Apple, Tesla, and Microsoft once started out as a fledgling baby before they became breakout stars.

If you wait until they crack the top 500, it’s likely that a lot of the explosive growth has already happened—thus the argument for owning the #SmallBoiz too, knowing the risk that most of them will fizzle and die—but if you own one or two future shooting stars, it could create a lot of growth.

Other approaches

Of course, another approach is buying the entire market in a fund like VTSAX (ETF: VTI), the Vanguard Total Stock Market fund. When you own the entire market, you’re buying the entire haystack—not just a subset of it. The tricky thing is that big companies are given preference in index funds, by nature of the fact that they’re bigger.

And while we won’t get into a deep dive today on an optimal way to structure your portfolio (hint: this is hotly contested and there are many competing schools of thought, as you may be able to tell already), it’s important to know that index funds require you to abandon your get-rich-quick fantasies and gambling tendencies and instead subscribe to the get-rich-slowly-and-steady plan.

“Great, I’m in. But what’s the difference between an index fund and an ETF?”

Ah, yes, the other great confusing topic with no great answer.

Investing is always evolving. Remember how the index fund was invented in the 70s? The ETF was invented in the 90s, and it stands for “exchange-traded fund.”

It basically just means it’s an index fund that, instead of trading once per day, can trade throughout the day as if it were an individual stock. You can get index funds (or ETFs) that track all sorts of indices: the tech sector, small companies, bonds, etc.

What does that mean for us? Nothing, really, except for the fact that they usually have slightly lower expense ratios (read: costs) and lower barriers to entry.

Where to buy index funds and ETFs

You can buy ETFs in any investment account, and it’s really easy to open one. Your 401(k). Your Roth IRA. Your taxable investing account. Your boyfriend’s sister’s 401(k)! These puppies are everywhere, and you’d probably benefit from an audit of what you’re invested in in these various accounts. Happy index investing!

This topic can be provocative. It gets the people going!

In the personal finance world, this fact—that you’re likely better off investing on your own rather than paying another human being 1% of your net worth to do it for you—is not really disputed. It’s becoming accepted as the truth.

What do I mean by “on your own”?

When I say “on your own,” I don’t mean without any help at all (let’s be honest, this entire website is dedicated to the fact that we all probably want some help). After all, using a roboadvisor to manage your assets isn’t free (it’s typically around 0.25% per year, or $25 per $10,000), but it’s a lot less than the 1-2% fee that your friendly money manager named Dennis from Michigan will charge for a few hours of his time every year. 

What I mean is, you shouldn’t, under almost any circumstances, pay another individual (financial advisor or otherwise) a seemingly low percentage of your net worth year over year to actively manage your money for you without knowing the alternatives. This is known as an assets under management model, and it can be incredibly costly—but they won’t tell you that. (Note that I’m talking specifically about an AUM model, and not an hourly fee-only model. Paying a professional who’s both (a) fiduciary and (b) has a CFP designation for specific help and advice can be a very good idea, as is employing other financial professionals when needed, like CPAs, especially as your net worth grows and situation becomes more complex.)

What I’m suggesting is being very wary of models wherein all of your money is managed by another person for 1% (or more) each year.

While we’re about to dive head-first into the #sexymath, the fees you’d be charged are intentionally deceptive. 1% per year? Who cares, right? You get to keep 99% of your money! What could be easier than that?

That’s what they want you to think.

That 1% per year compounds just like your interest compounds, and I’ll show you in a few moments just how debilitating this fee can be.

The super-extra messed up part is that the 1% you’re paying them is in addition to the funds’ expense ratios themselves. For example, you may be paying 0.5% for the funds they’re investing you in—and then the extra 1% goes straight in their pocket.

But let’s back it up a step first.

Should I pay someone the 1% (or more) fee if they can get me better returns?

Well, sure!…if it were that easy to do.

A fund manager promising you they can just “beat the market” for you would be like me joining a crowd of rowdy high school boys for a pick-up game of basketball and telling them I’ll “just play like LeBron James.”

Think about this logically: If you’re paying them a 1% fee, that means to even break even with the market, they’d have to beat it by at least 1% every single year, consistently (because you’re paying them 1%). In order for it to be actually worth your while, they’d have to beat the market by >1% every year.

And if you’ve ever barely passed a test, you’re probably like, “How hard could that be? 1 stinking percentage point? I could probably do that!”

And you’re right—beating the market once? It’s possible. But do you know how possible? Let’s dig into statistics:

Fewer than 20% of actively managed funds beat the market over a 1-year timeframe.

That means 80% of the time, passive investing (buying an index fund and holding it) wins when examined over a full year.

But what about over 5 years?

Fewer than 10% of actively managed funds beat the market over a 5-year timeframe.

And if you’re a long-term investor like I am, you’re probably curious what the long game is: Okay, Katie, sure, but what if I want to stick with this person for life? A long-term relationship? What about then?

Glad you asked!

Fewer than 1% of actively managed funds beat the market over a given 30-year timeframe.

(Source: ChooseFI episode 284, “JL Collins Returns.” You can check out the episode and summary notes here. JL also talks about these statistics in his book, The Simple Path to Wealth.)

Let’s pretend you’re gambling here: Would you like to go with the method that works 99% of the time, or the one that works 1% of the time?

I’m not a betting woman, but I know which one I’d choose.

“Passive management” of your money essentially means that you’re buying (and holding) low-cost, diversified assets and—instead of trying to beat the market—you’re just trying to keep up with it.

Let’s talk about incentives

If this method seems so ineffective, why do people pay for it?

These wealth management companies have good marketing. They’ll sell you on some strategy they have (some “proprietary methodology” of picking funds, that, of course, they can’t actually tell you about) and why it’s worth the extra fees. Maybe they’ll offer extra services. Regardless, you’re paying through the nose for it.

And you know what? You probably won’t notice you’re paying through the nose for it, because the fees are charged in an incredibly subtle way. Little by little, you’ll be charged management fees on your statements. $50 here, $100 there—you don’t just receive a bill at the end of the year for $5,000. (Because if you did, they know you’d take a step back and say, Wait a second, $5,000? I’ve talked to my money guy twice this year for about an hour each time. I did not get $5,000 worth of value out of this.)

And why does it work for them? They may tell you that their incentives are aligned to yours: When you make money, I make money! Well, that’s true—they are making money off your money—but that statement is misleading. Even when you LOSE money, they still make money, because they’re getting 1% of the total balance of your portfolio every. single. year., regardless of whether or not they beat (or even keep up with) the market. It goes up or it goes down, they collect their 1%.

So while their incentives are slightly aligned to yours, their disincentives are not.

And you know what? It wouldn’t even matter if they were aligned—because even the best fund manager in the world with the best of intentions could want more than anything to beat the market for you, and still fail. That’s how hard it is. You saw the numbers: Even in just a 1-year window, fewer than 20% of funds do it.

Everyone loves to point to examples like Tesla. I can’t tell you how many times I’ve heard, “Well, I bought Tesla at $100 and I’ve made 39487239872% on it!” That’s wonderful, and I’m genuinely happy the lucky stock pick worked, because it’s rare—and anytime it works is exciting.

If you can consistently do that every single year for the rest of your life, then you’re going to be a very rich person before long. But one bad pick? One pick that goes from $100 to $0? You wipe out all that positive momentum. Picking stocks is like gambling. Paying someone else to pick stocks for you is paying someone else to gamble your money.

Index-based ETFs can’t go to $0, because they’re composed of hundreds (if not thousands) of companies.

What’s the effect of these fees over time?

While the actual outcomes can vary depending on (a) how much you’re investing and (b) over how much time (here’s a NerdWallet article that illustrates how a 1% fee can cost Millennials with a long retirement horizon nearly $600,000 over their lifetimes), a good way to think about it is this:

You know how I love early retirement math? That you can withdraw 4% of your total portfolio value year over year and never run out of money after you invest 25x your annual expenses? (See, I told you this math was sexy.)

Think about that. If you save $1,000,000, you can withdraw $40,000 per year to live on, and compound interest will replenish your portfolio value (and then some, usually) by the time you go to withdraw again.

How does a 1% fee impact that?

Well… 1% of your annual 4% withdrawal has to go to the guy who’s spending about an hour a month glancing over your shit.

Does that feel fair to you?

No matter how little or much effort that person is exerting on your behalf—even if they are well-intentioned, altruistic, and talented, as many are – the likelihood that that individual is going to be able to justify their own 1% value to you over a 30-year timeframe? We already know. It’s less than 1%.

If I’m spending $10,000 per year for someone to manage my $1M portfolio, that actually means I could run out of money if I needed $40,000 per year to live. That’s the difference 1% can make.

In order to generate $10,000 of interest income per year to pay your fund manager, you’d need to have an additional $250,000 invested (25x your $10,000 annual expense).

That means you no longer get to retire at $1M saved—you need $1.25M. And guess what? Now your fee goes up, because 1% of $1.25M is $12,500. Which means you need an extra $312,500, not $250,000 saved. Which means it goes up to $1.31M. Which means…

See where I’m going with this? See why that pesky little 1% becomes unsustainably problematic for your early retirement dreams?

The behavioral value-add

Because more and more retail investors are becoming familiar with the way fees compound and the infrequency with which professionals (even hedge fund managers, the supposed creme of the crop) beat the market, many financial professionals position their true value-add as behavioral. As in: They create a barrier between you and your money to help prevent you from panic-selling during a bear market.

While I think this argument is valid (and a more accurate representation of their value add), I would note that it’s—by definition—completely in your control whether or not you have the behavioral chops to ride the waves of a bear market. If you’re reading this article, my guess is you’re attempting to make a good faith effort at learning enough to do just that.

Paying someone else 1% per year to manage your emotions for you (among other things) is expensive, in my mind, but its true value is subjective if you’re afraid you’ll panic-slap the sell button.

If you’re like, But Katie, I need #help

Welcome to my purpose in life—and the purpose of this site.

Because I know some people don’t feel comfortable investing tens of thousands of dollars on their own, I think roboadvisor solutions (which charge a fraction of what an active fund manager would demand of you) are the perfect middle ground. I’ve recommended it to people for years since I found it in 2018 because you literally don’t need to know anything about investing to use it.

Roboadvisors utilize the same “buy and hold” strategy that iconic investors like Warren Buffett (one of the greatest investors of all time) and Jack Bogle (founder of Vanguard and inventor of the index fund) advise, but they can ensure proper diversification on your behalf, harvest losses for tax benefits, and coordinate your asset allocation properly across tax-advantaged and taxable accounts to minimize your liability.

That’s a fancy way of saying they’ll do all of the actually valuable things a financial advisor would do for you, without the whole “foolishly trying to beat the market, triggering a bunch of taxable events, and charging you handsomely to do it” part.

One of the primary reasons I always suggest robos for people who are gun-shy about investing is that their website and app are incredibly user-friendly. You don’t get the sense that you’re going to press the wrong button and blow up the Pentagon, which is how I feel half the time I use traditional brokerage firm websites.

And of course, if you do feel comfortable operating directly on Vanguard.com, you can buy diversified index funds with extremely low expense ratios there directly and remove the middleman entirely.

Fees

You’re probably wondering how I’m cool with a 0.25% fee when I just railed against a 1% fee (although in investing, that’s a significant difference).

Here’s why I’m okay with the ~0.25% fee: The level of diversification, control, and tax advantages justify it to me. I don’t have the patience or time to enact tax loss harvesting (tax loss harvesting is where you basically sell an asset that’s down to “realize the loss” for tax purposes, and then immediately buy a similar asset to hop back in the market and participate in the rally, but you have to be careful not to violate the wash sale rule).

Moreover, when you decide you want to rebalance, you just change your breakdown and most robos will execute the trades in the most tax-efficient way.

You literally slide a glider further to the left or right of a “stocks vs. bonds” spectrum to set your risk tolerance, and the portfolio will be optimized by an algorithm in an appropriate way without making tax-heavy mistakes (that frankly, I don’t trust regular people not to make—I pride myself on knowing what I’m doing, but taxes on that micro level can be tricky).

I like how they’ll show you a warning message when you do something that, even after they strategize on your behalf about how to execute the trade, it still may result in a tax bill of $X. You’re able to determine before moving forward whether or not you’re comfortable with that, rather than plowing blindly forward and hoping for the best, with no surprises.

This isn’t meant to be a trash talk session on actively managed fund advisors

It’s only intended to show you what you’re likely really paying for—a slim chance at beating the market, with a big, big long-term price tag.

Every single time I go home, I try to convince my parents to break up with their financial advisor, but they’re in too deep. I think they’re afraid to calculate how much they’ve paid him over the last three decades, but trust me, he’s probably got a vacation home on my parents’ dime in exchange for their biannual phone calls. Good for him. I can’t deny the guy’s a hustler.

Ultimately, I know I’ll probably receive some heat for this one, but I cannot—in good blogger faith—ignore this topic just because there are financial advisors in my audience.

And you know what? If you consider all of this and still decide it’s worth it to you, that’s your prerogative and I’ll just be happy you’re making the decision knowing all the facts.

But trust me when I tell you: You are competent enough to take the simple path. If I thought there were a complicated path I could take that would produce better returns but cost a little more time or money, believe me, I’d be doing it. #YearnToEarn, remember? I love money and #gainz, so I’d put the legwork (or investment) into a better way if there were one. If the data told me that actively managed funds and fund managers were worth it, I’d pay their fee.

Low-cost, diversified index funds that are tax-optimized is going to be your best possible chance at becoming a 35-year-old millionaire in 99.9 of 100 scenarios, unless you create an app and get acquired by Google. Then, do that instead.

If you can’t beat ‘em, evade taxes like ‘em.

Just kidding – there will be no tax evasion here (you hear that, little FBI man that resides in my MacBook Air? No need to call Jim at the IRS, because everything in this post has its origins in tax code loopholes, laws, and cultural differences between the wealthy and the middle class).

I think it’s very much worth calling out: I am middle class. I was raised middle class, I make a middle class income, and I don’t consider myself “wealthy” in the sense that I’m talking about “the rich” here. However: I’d rather model my financial behavior after people with two commas in their net worths instead of one.

Isn’t avoiding taxes illegal?

Good question! Here’s the thing to understand right off the bat about taxes:

Your earned income and your property are the two things that are taxed the most aggressively.

Read that again.

Your earned income and your property are the two things that are taxed the most aggressively.

What do middle class people have in common?

Well, usually, they have good, middle class jobs (that pay earned income) and a primary residence (that faces unforgiving property taxes every year).

(Property taxes are the thing that everyone likes to ignore when making the argument that home ownership is an unquestionably good idea. At a national average of 1% of the value of your property every single year, your $350,000 home has an additional (average) $3,500 expense tacked on to its mortgage, interest, and insurance annually that goes toward nothing but Uncle Sam. Puke! The more expensive your home, the more you owe to the government. It’s one of the most effective ways to actually tax the wealthy, because you can’t move your home to an offshore bank account.)

Now, there’s nothing wrong with owning a home (see the “Cars & homes” category on this site for more articles about the math of home ownership), but the hard thing about the middle class is that 80% of middle class Americans have the majority of their net worth (60%) tied up in their home, which means most of their net worth is taxed over and over and over again on an ongoing, never-ending basis.

Conversely, the upper-middle class and “wealthy” in America (the demographic we’re attempting to model our financial habits after) own homes that account for only between 10 and 30% of their total net worth.

So what’s taxed un-aggressively?

Is un-aggressively a word? It keeps generating that ugly red line underneath it, but I’m plowing forward for the sake of the narrative.

You know what’s taxed at an almost laughably low rate?

Your long-term capital gains and your dividends – that is to say, any money that your money makes for you (in an investment account) is taxed so little it’s almost a joke. Let’s dive deeper.

Why the wealthy hide most of their net worth in investments

Historically, the middle class in America has put most of their net worth into their homes. And you know what? It’s not their fault: We’ve all been sold a lie that home ownership is the way you get rich (it’s not). To understand why, check out this post about when the math actually supports buying instead of renting.

But what happens if my entire net worth (or close to it) is “invested” in my primary residence?

Let’s say my primary residence is worth $500,000 and I have about $25,000 in cash. My total net worth is $525,000, assuming I own the home outright and no longer owe any payments on it.

Let’s also pretend that my income is $125,000 per year. Because I like nice things, I don’t really invest any of the money – I just take it all as cold, hard cash, spend most of it, and shuffle whatever’s left over into that $25,000 cash sitting in my savings account on the side.

If you’re looking at this scenario thinking, “Hey, that’s not so bad! Half-a-million-dollar home, $25,000 in cash, and a six-figure salary? I’d take it.”

My friends, this person is a tax NIGHTMARE!

Let’s explore why:

• Assuming they pay the national average in taxes on their $500,000 home, they’re looking at a $5,000 property tax bill annually.

• Their earned income, $125,000, is their only source of income – in other words, they’re only living on earned income – no capital gains or dividends to speak of. This person would be taxed on the full $125,000, paying $29,101 in federal income taxes and FICA (want to calculate your own? I’m using this calculator).

Our hypothetical middle classer is paying nearly $29,000 in taxes this year – more than the amount they’ve got in their savings account liquid. They’re technically “worth” over half a million dollars, but they can’t use their home to pay their income taxes.

How would investing have helped this individual?

Investing is beneficial for your tax liability (in other words, it can help shield you from taxes) in two ways:

• When you invest in a pre-tax account, you shield that money from Uncle Sam’s bill collectors because you’re “deferring” the taxes for a later date (but if you’re a loyal Money with Katie reader, you know you can also collect it later tax-free too if you perform the Roth IRA conversion ladder and keep your conversions under the standard deduction).

• When you get to the point where you can live off investment income (i.e., invest aggressively enough for long enough), you can “pay” yourself a ridiculously high amount before the money is actually taxed.

Let’s break this down.

First, it’s helpful to look at the tax brackets on earned income:

As we can see here, our friend is being taxed in the 24% tax bracket on the last $20,000 he or she makes. Of course, the standard deduction will eat up some of that – but the point stands that they aren’t doing much to help themselves lower their tax liability.

(The earned income tax brackets are progressive, which means your income is taxed at different rates. Your first $10,000ish is taxed at 10%, the next $35,000ish is taxed at 12%, etc. – which means the person’s entire income isn’t taxed at 24%, only the chunk from $103,350 to $125,000.)

Pretty gnarly, huh? But what if this person had been investing in the market for the last 15 years?

Better yet, what if this person had avoided the half-a-million-dollar McMansion and instead invested heavily in low-cost, diversified index funds that were now producing dividends and capital gains this person could live on? (In other words, what if they were nearing financial independence?)

Let’s look at how your investment income is taxed (assuming no other income; in other words, you’re living off your investments instead of a salary):

Yep, you read that right: A single person can withdraw up to $48,350 per year from their investment account for the low, low price of 0% in taxes paid, if it’s their only source of income.

$48,350!

And what if you want to withdraw, say, $300,000 per year? You’re living high on the hog! You’ve got six months to live! Time to finally pack your bags for Yacht Week and buy that Gucci tracksuit you’ve been eyeing.

No problem. You’ll only pay 15% in taxes on up to (I’m throwing up) $533,400.

You know what EARNED income bracket gets charged 15%? The one between $40,000 and $80,000.

The government is basically incentivizing you to invest like a crazy person to the point that you can live off your investment dividends instead of a traditional job.

When you look at it from a tax perspective, it makes almost no sense to have a real job. In fact, it makes ALL the sense in the tax world to try to invest as aggressively as possible with your earned income so you can get to the point where you can live off your capital gains, which are taxed at a much, much more forgiving rate.

And that’s why strategically wealthy people shovel all their money into investments that generate income that isn’t (or barely is) taxed.

So now you can see why it’s to your massive benefit to have enough in investments to not have to work (surprise!), but what about on the front-end? How could our friend have avoided such a high tax bill?

Pre-tax investment accounts. These are what we like to call tax shelters, because the federal government can’t touch it until you go to use it later, strategically at a time where you’re in a lower tax bracket. Checkmate.

What would’ve happened if our friend had maxed out their 401(k) instead of taking home all their income?

At an annual maximum contribution of $23,500, our friend could’ve lowered their taxable income like this:

Income: $125,000

2025 standard deduction for a single person: Subtract $15,000 for the standard deduction, which lowers taxable income to $110,000

401(K) maximum contribution: Subtract $23,500 for the 401(k) contribution, which would go into the 401(k) completely untaxed

New taxable income: $86,500

There are other tax-sheltered accounts this person could play with, like HSAs and IRAs, but for the sake of our example today, we’ll keep it simple.

• An HSA, or Health Savings Account, is an account that you’re eligible for if you have a high-deductible health insurance plan – the contribution limit for a single person in 2025 is $4,300. When I found out I owed $5,000 in taxes this year because I underpaid throughout the year, I put the maximum contribution into an HSA to defer that income from taxation and ended up lowering my tax bill to $4,000. One step at a time! The cool thing about the HSA is that you can actually invest the money in it once it crosses the $1,000 mark (typically).

• An IRA, or Individual Retirement Account, comes in two flavors – Traditional and Roth – and I’ve written about them extensively. A traditional IRA, which would’ve been a great tax deferral vehicle, wouldn’t work in this example because our friend with a six-figure income is over the income limit. #sad.

Now? Our friend owes ~$23,500 in federal taxes and FICA, roughly $6,000 less.

That’s an annual savings of $6,000 by doing nothing more than putting your earned income into a tax-sheltered account.

Theoretically, if you had no other earned income, you could “make” $96,700 as a married couple filing jointly in dividends and capital gains and live on it completely tax-free.

The trick? Invest aggressively enough, early enough to build up a massive portfolio that’s capable of throwing off $96,700 per year in capital gains. Easier said than done, but hopefully this serves as spite-motivation to stiff the Feds on the taxes you’d otherwise be paying them if that $96,700 were earned income.

The focus of this blog shifts in accordance with my own obsessions, so you’ve probably noticed a focus on investing recently (before that it was psychological approaches to changing your spending habits, then it was travel rewards, and now… here we are).

I like to think that, as a result of my frenetic obsession-switching, you’re going to get a pretty damn well-rounded free InTeRnEt EdUcAtIoN. What more could you ask for? #ReferAFriend

Back to basics

One question I started to get more when I’d post about investing surprised me: “What do I have to invest in to get the 7% return?”

I realized: I had failed y’all on hitting the basics first before diving into a veritable deep-end of early retirement drawdown strategies.

Blame me, not yourselves – let’s talk about why I always use 7% in my examples.

When I first sat down to write this post, I figured I’d find 1,000,000 pages of Google search results with proof for the average – but I was surprised to find the search results were a little bit more all over the place than I expected, and most of the articles quoted some Warren Buffett Bloomberg article that I was unable to actually find (you know how it is – one article links the quote to another, which linked to a different secondary source, which linked to the first blog I found… it’s a circular cluster, and while I’m sure the quote is legitimate, I couldn’t find the original Bloomberg piece that these blogs allege originally published the interview, so I’m hesitant to include it here).

In any case, Buffett’s interview quote mostly just offered an explanation for why the average return is 7% (it has to do with GDP, inflation, and dividends, basically).

Moral of the story? It sounds like this is more contested and discussed in the finance community than I originally thought.

In short, the average stock market return since the S&P 500’s inception in 1926 through 2018 is approximately 10-11%.

When adjusted for inflation, it’s closer to about 7%. [Since we’re talking citations in this post: Investopedia.]

The S&P 500 today is composed of the 503 largest companies listed on stock exchanges in the U.S., and it’s responsible for driving most of the growth in the total market.

1926 was 100 years ago, and a lot has happened in the last century – if we shorten our look-back period to “recent” history, so to speak, I love this excerpt from Investopedia that regales us with tales of bull markets, bear markets, and “black swans”:

“The most recent 20-year span, from 2000 to 2020, not only included three bull markets and two bear markets, but it also experienced a couple of major black swans with the terrorist attacks in 2001 and the financial crisis in 2008. There were also a couple of outbreaks of war on top of widespread geopolitical strife, yet the S&P 500 still managed to generate a return of 8.2% with reinvested dividends. Adjusted for inflation, the return was 5.9%, which would have grown a $10,000 investment into $31,200.”

Notice anything hilarious about this paragraph? Any major black swans missing? Perhaps a black swan that’s lost its sense of taste and smell? As you can see, we had three of them in 20 years, and the market’s still doing great. My perception of this? The market is resilient.

That’s about 6% from 2000 to 2020.

“You could repeat that exercise over and over to try to find a hypothetical scenario you expect to play out over the next 20 years, or you could simply apply the broader assumption of an average annual return since the stock market’s inception, which is 6.86% on an inflation-adjusted basis. With that, you could expect your $10,000 investment to grow to $34,000 in 20 years.”

What does this mean for you?

Whether we’re talking a 5.9% return or the 12.97% return we’ve seen over the last 10 years, investing in the S&P 500 is all but USDA-choice, FDA-insured to beat your savings account by a landslide.

To invest in the S&P 500, you have options.

You can either buy index funds (that have slightly higher fees, as a general rule, and are priced once per day — index funds usually require a higher “buy-in” as well) or you can buy ETFs (which are made up of the exact same thing but traded throughout the day like a stock and usually have lower fees).

Got it? Two options. Index funds and ETFs.

Because I am a Vanguard loyalist, I invest in Vanguard index funds and ETFs:

VOO is the ticker symbol for the Vanguard S&P 500 ETF.

VFINX is the ticker symbol for the Vanguard 500 Index Fund Investor Shares.

They’re basically exactly the same, except for the way they trade.

All major investment banks have their own version of this, and at its most basic level, the index fund/ETF has a little piece of each company in the S&P 500. For a list of these companies, check out this article. Think Alphabet (Google). Amazon. American Express. Southwest Airlines! Domino’s Pizza! These are big names, and instead of hitching your wagon to one, you get to buy a little of all 500 when you invest in S&P 500 index funds and ETFs.

Other banks offer a similar investment “product,” and I did a little poking around.

• Schwab’s SWPPX has a net expense ratio of 0.02%.

• Fidelity’s VXIAX has a net expense ratio of 0.015%.

It looks like Schwab’s and Fidelity’s index funds are cheaper than Vanguard’s; VFINX’s expense ratio is 0.14%. VOO’s expense ratio is 0.03%.

While VOO is an ETF and SWPPX is a mutual fund, remember: They’re just different banks’ versions of essentially the same thing, an account that buys a little of 500 different companies.

So now what?

While I like to use platforms like Betterment and M1 Finance for proper diversification, you can also buy these index funds and ETFs in your regular brokerage account, IRA, and (usually) 401(k). Now that you have some names to plug in, it’s as simple as searching and pressing “buy” with the money you’ve put into the account.

Getting a 7% average return (based on the historical returns outlined above) is as simple as that.