Why Filipinos Should Buy Index Funds

Filipinos Are Missing Out

I was talking to a Filipina friend recently and mentioned to her that I invest in stocks. Her response was, “whoa! You have guts. Stocks are too risky.” It is an all too common reaction I hear from my Filipino friends. And it is detrimental to their ability to accumulate wealth. My friend was missing out on the greatest investment vehicle of all times.

In this blog, I’m going to share why Filipinos should NOT fear the stock market, and instead buy index funds!

The Stock Market
Don’t be Afraid of the Stock Market

Stocks Are Unpredictable

My friend was not entirely wrong. There is never any guarantees across any type of investments. And, yes, stocks are more volatile than bonds or treasury notes. They are unpredictable… when you look at its day-to-day or even weekly and monthly movement. If you buy stocks from one specific company then, yes, you should be fearful. That’s why you should buy Index funds.

Buy Index Funds

Index funds are exchange traded funds (ETF) or stocks much like individual company stocks. But, one unit of Index fund is invested in a wide range of companies, not just in one company. For example, the Vanguard Total Stock Market (VTI) fund is an index of the entire US economy; meaning, in its portfolio contains thousands of US-based publicly traded companies (3,680 companies as of June 8, 2020). You are, in essence, part owner of the entire US economy.

What if the US Economy Collapses?

What if the US economy collapses? An entirely possible scenario. In fact, it nearly happened before during the Great Depression of the 1940’s. Then there were smaller ones such as the Dot Com bubble burst and the 2008 global recession. In fact, crazy economic downtowns happen almost every 10 years.

JL Collins wrote about this Big Ugly Event. Check this easy read blog post: The Big Ugly Event.

It’s a rollercoaster ride when you invest in stocks, but the benefits is enormous.

Now check out this chart below:

The Dow Since 1896
Chart Source:

That, my friend, is the Dow Jones Industrial Average (DJIA), the US stock index that measures the top 30 companies listed on the US stock exchange. It’s a reliable predictor of how the US economy is doing. Since 1896, DJIA has gone nowhere but up! Higher and higher.

Two Advice on Index Investing

I highly encourage you to invest in index funds. If you do so, you will be generously rewarded. I only have two advice:

  1. Do Not Sell. Keep buying and eventually the dividends from the index funds you bought will produce a good amount of passive income (which should be reinvested.)
  2. Be frugal. Live below your means and keep buying index funds. You will be richly rewarded by the dividends and capital gains.

My Favorite Index Funds

VTI is my favorite Vanguard index fund (also called Exchange Traded Fund [ETF]) to buy. It’s still affordable. At the time of writing this, it’s $153 per share/unit. It has a dividend yield of 2.25%. So, if you have $100,000 worth of VTI, you’ll receive a dividend of $2,250 per year, or $562.5 per quarter (which is how dividends are distributed).

If you are able to amass $250,000 worth of VTI, having bought more and reinvested the dividends, that amount will produce $5,625 per year of dividends, or $1,406.25 per quarter. Now, if you have $1,000,000 worth of VTI, you will earn dividends in the amount of $22,500 annually, or $5,625 per quarter, or $1,875 per month. That’s from dividends alone!

With that amount of dividends every quarter, which is equivalent to Php 93,750 ($1,875 x 50 Php) you can move to a nice country like the Philippines and live comfortably. Or, if you prefer to stay in the states, move to beautiful Louisiana and live off the dividends for the rest of your life.

Other Vanguard Index Funds to Consider

I keep mention VTI because it’s the TOTAL Stock Market Index funds. You hear me? Total. But, it’s not the only good options. In fact, I bought a few VYM or the Vanguard High Dividend Yield ETF. As the name goes, it has a high dividend yield. I’m talking about 3.64% as of 5/28/20.
Let’s listen to the amazing couple of Our Rich Journey YouTube Channel as they share the best Vanguard ETFs for Financial Independence.

If you got excited about investing in Vanguard index fund, I highly recommend this step-by-step guide by Fly to FI: click here. They’ve done a better job that the one I deleted.

~ Kent

What has been your experience with investing in stocks? Please leave a comment below.

You might also like my article on financial literacy resources

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