This Is How To Become A Millionaire By Investing In Index Funds

Bernard Okoth
11 min readJan 27, 2022


So did you know, if you saved $200 per month, at an eight percent annual return, and in 45 years, you would have over, wait for it.

One million dollars. To be honest, when someone first explained this was possible by investing in index funds, I hardly understood a word they were saying. It was like they were speaking a different language. Today, I thought it was about time that I explain everything, step by step.

And because I like people that actually practice what they preach, I’m gonna be investing $10,000 of my own money, so you can see exactly how it’s done. Just a quick disclaimer though, I’m not a financial advisor, I’m a businessman, and this is just some of the real life strategies that have worked for me.

Personally, I always thought of index funds as my backup plan. If my businesses hadn’t been successful, then I would have become a millionaire anyway, through these investments.

Part one, uncovering the lies. So let’s cut to the chase, you’ve been put at major disadvantage. People have been telling you lies about investing, all of your life.

For instance, at school, when I was growing up, I remember asking my teachers about investing, and they always said, it’s just for rich people, as they can afford to hire professionals to do it for them.

For the longest time, I believed investing wasn’t for me, because I wasn’t a pro, and I didn’t have much money, and I thought I wouldn’t stand a chance. Then we’ve got friends. One of mine said I’d have to look at all the financial newspapers, learn how to read the charts, and according to him, it just wasn’t worth my time.

And on top of this, every time I mentioned investment to my family, they seemed so scared because they thought it’s the most risky thing in the world, and not for normal people. My dad even said, if I started investing, I’d lose all my money. Can you believe that?

These lies are exactly what the experts want you to believe, as they know that index fund investing is extremely easy to do. You don’t need much money to start, the risk are pretty low, and on average, it will make you more money in the long-term.

The dark truth is that the average actively managed fund returns two percent less a year, than the market in general. This means that professionals on average are doing worse than index funds, and even if they end up losing your money, they still charge you fees, no matter what.

Now, according to my favorite film, “The Matrix,” you have now taken the red pill and you’ve woken up to the truth. It’s now time to move on to part two, understanding the game.

I know when I first started investing, I felt like I was gonna make so many mistakes, but once you understand that language, it all becomes so much easier, and that’s what we’re gonna be talking about in this part.

So I’ve been banging on about index funds and so I think it’s about time I explained what they are, and why they’re so cool.

I’m a big football fan, and if you’ve ever followed any sports, you’ll be familiar with a league table. The better your team performs, the higher up they’ll be on the list. But on the other hand, if they do really badly, they might be removed from the league entirely. This is almost exactly the same as an index.

All you have to do is switch out the teams for companies. Let’s take the S&P 500, for example. This is a list of the 500 best performing public companies in the U.S.A. the big dogs being Amazon, Google, Apple, and more recently, Tesla. And just like a league table, if a company doesn’t perform well, they’re at risk of being removed from the list.

Hasta la vista, baby. The idea of an index fund is to be a little bit sneaky, as it allows you to invest in every single company on the list, with just one click.

It’s a bit like a friend of mine who picks a different football team each year. He just wants to pick the winner every time. So investing in index funds means that even if a few companies do terribly, then it’s balanced out by the companies that are doing extremely well.

The average return on the S&P 500 over the last 10 years, has been 13.6%. Now, that is higher than usual, but get this, no one has ever lost any money, if they’ve bought and held an S&P 500 index fund for more than 20 years.

So if this is so foolproof, then why do people still buy individual stocks?

Well, personally, I like to do this just for a bit of fun. I also think that some companies are currently working on awesome technology for the future, but aren’t making a lot of money at the moment, so they won’t make the cut into the popular index funds.

So now and again, I like to invest some extra money into these up and coming company, so I don’t miss out. You’ll often hear people throwing around the terms, Roth IRA, in the U.S.A. Stocks and shares ISA in the U.K. TFSA in Canada, and Supers in Australia.

But what does it all mean? Well, these are types of accounts that allow you to earn profits on your investments, and you don’t have to pay any taxes on them, but they generally have limits because they’re just so powerful.

These are kind of like Captain America’s shield. So let me explain. If captain America just sat at home with his shield, then he wouldn’t ever get anything done, but when he takes that shield into battle, he has an advantage.

So these accounts are like your shield. Make sure to use them when you’re investing. A way you can do this is by using the money inside your shielded account to invest into index funds, and all the profits will be yours because the government won’t take a cut.

One of my biggest questions when I first started, was should I invest all my money at the same time, or do it gradually?

Now, this is something lots of investors argue about, so I’m gonna give you my view on things. Remember later, I’m gonna be investing this $10,000 in full, so that kind of gives you an idea of what I believe.

Investing all your money as a lump sum is certainly more risky. However, if I’m investing in something I know will increase over time, like an S&P 500 index fund, then there’s no point waiting. The longer you wait, the worse of an average you’ll be. However, if you don’t have the cash, I wouldn’t wait to save up the money.

I would just invest what I could every month, and sometimes you’re gonna buy when a stock’s high, other times, you’re gonna buy when the stock’s low, but overall, this is gonna balance out, and this is known as dollar cost averaging.

When you log onto an investing website or app, you’ll see that there is something called ETFs, which are very similar to index funds, and a lot of people get them confused. Both allow you to invest into a basket of stocks. However, the easy way to remember the difference, is just a think of what ETF stands for, Exchange Traded Fund.

If we break that down simply, it just means that it can be traded on the stock market throughout the day, whereas an index fund can only be bought and sold for a price that is set at the end of each trading day.

But let’s cut to the chase. You probably wanna know which one’s better. On average, if you’re starting with little money, then ETFs may be a better option, as they have lower minimum investment thresholds, and many brokers don’t charge a trading commission.

Now, if you’re still watching this and you’re younger than 18, then I’m really impressed that you’ve been listening to a boomer like me for so long, but seriously, not many people learn this at such young ages, they don’t teach it at school.

But why you can start investing under 18, is to open up a custodial account in the U.S.A. or a Junior Stocks and Shares ISA in the U.K. To set up these accounts, you just need to ask your parents. The real secret ingredient to this millionaire formula is time. And when you’re younger, you have so much of it.

That’s because every year, as you keep adding to your investments, the interest starts to compound and grow at a rapid pace. It’s a snowball effect.

Once you reach a certain tipping point, the interest you’re making is much more than the amount you’re investing on a monthly basis. It’s a bit like when you see someone take ages to get to a hundred thousand subscribers on YouTube, and then within a few months, they manage to hit the big million.

The sooner you get started, the better, as time will be on your side. Now, I wanna clear something up. When people talk about index funds, you will hear S&P 500, again and again, people just love it.

As I mentioned before, this is at top 500 public companies in the U.S.A. but the cool thing is you don’t actually have to be in the U.S.A. to invest in this. I’m in the U.K. and it’s one of my favorite investments. I just love to think that I own a small part of all the biggest companies in the U.S.A.

Part three, mastering the strategy. So lots of people will teach you what to do, but they won’t actually say how to do it. So I’m gonna walk you through everything, right now, while I invest my own $10,000.

The first thing to really do is to work out your goals. Let’s say you wanna become a millionaire. That was one of my goals, I just had to work out how much I would actually need to invest per month, to achieve this.

I love using these compound interest calculators. You can find them online, easily, yourself, if you wanna have a go at this. So if you’re able to invest $250 per month with an eight percent annual return, over 42 years, you’ll have over a million dollars in your account.

Now, if you’re able to invest that for another 10 years, you’ll have over two million in your account. Of course, if you wanted to invest even more, then you’re just going to speed up the whole process.

The next thing we need to do is pick the brokerage website we’re using to set up our account, and invest. The ones that I love are Charles Schwab, Fidelity, and Vanguard. I call these, the big three.

The founder of Vanguard, John Bogle, is often referred to as the father of index fund investing. And if you think I’m a boomer, he was even older than me. His Vanguard Group gave birth to index funds, so they’re the oldest and most trusted.

So to get onto their full list of funds, just go up to Investing, and click on Vanguard Mutual Funds. The main things to focus on are the expense ratio, which is how much they’re gonna charge you per year. You obviously, want to keep these as low as possible, and luckily, with Vanguard fees, these are very low, anyway.

The other thing to look at is the average returns, and they break these down nicely. But of course, it’s always good to remember that past performance doesn’t always mean future returns.

My wife’s a bit like Vanguard, she likes everything in order, and nothing out of place. So they have arranged all of their funds into different categories, so everything is easy to find.

Category one, is bonds. These are a type of contract that companies and governments sell when they need extra money. If you invest in these, they promise to pay you back in the future. These are often seen as pretty low risk, but also, pretty low returns. Therefore, the older you are, the more bonds you should have in your portfolio.

Number two, is balanced funds. The idea of these is to pick the age at which you wish to retire, and they’ll do all the rest of the work for you, and find the right mix of index funds. Actually, these go up in five-year intervals, and you can pick whichever suits your plans best.

This could be a good option if you wanted to invest without thinking about it too much, but personally, I always prefer manually investing. It’s a bit like driving an automatic car, that does all the work for you, it just isn’t as much fun as a stick shift.

Number three, is company location and size, known as small, medium, and large cap. Here, you can find VFIAX, which tracks the S&P 500. You’re able to see exactly what companies you would be investing in, and also the risk level.

VTSAX is another good one, which is a total stock market index fund, which has over 3,586 different stocks. This allows you to invest in the entire U.S.A. stock market in one click.

There’s a minimum investment of $3,000 again, but as before, there’s also an ETF version with no minimum, called VTI. Then you have international stocks. Quite a cool one is emerging markets, which invest in companies based in China, Taiwan, India, and many more.

But as you can see, this is a five on the risk scale. So I wouldn’t personally invest a lot of money into this fund because, I’m a bit old to be taking too many risks, and I need to sleep at night.

Number four, the last category, is sector based. So if you have a particular interest in energy, health care, or real estate, you can invest into these sectors. And there are also a lot more options for sector investing in the ETF.

So now we’ve broken down what’s on offer, hopefully, it all looks a bit more understandable. Now, for the moment you’ve all been waiting for. It’s time to invest my $10,000.

I could split this between lots of different funds, but personally, I like to invest the majority of my money into American companies. I would say, probably, about 70% American, 20% in other countries, including the U.K. and 10% in some bonds.

I like to keep the bonds quite low, as I don’t mind this little extra bit of risk, because I’m only 53, and I have a bit of time before I’ve got to rebalance my portfolio to secure my investments.

But that’s a personal choice, depending on your risk tolerance. The funds that are available are different in every country, but the index is they track it very similar. So you may need to invest in a different fund to me, but obviously, you can still use my percentages as a guide.

So I’m going to the U.K. Vanguard site to invest $5000, straight into this ETF, that tracks the S&P 500. So here we go, all done. $2,000 is going into an index fund that tracks the total American stock market. So again.

So far that 70% invested in the biggest economy in the world, which of course is the U.S.A. Now, I like to balance this out by investing in a different economy. As I look back in my own country, I’m gonna be putting $2000 into the FTSE 100 Index Fund. So looking good. All done, great.

Now, I’ve invested 90% of my $10,000, and I’d like a bit of security. Let’s just put the remaining $1,000, into a Global Bonds Index Fund, and let’s just do that.

So just like that, I’ve invested in the U.S.A. companies like Apple, Amazon, Tesla, and Google. I own a small piece of the biggest companies in the U.K. like HSBC, BP and Unilever, and I have some bonds to balance out my portfolio. It really is as easy as that.

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