A Fool-Proof Way Of Retiring With Millions

The stock market is in its longest stretch without a 2% sell-off since the financial crisis

The S&P has now officially gone 377 days without a 2% sell-off which marks the longest stretch for the benchmark since the great financial crisis, according to FactSet data compiled by CNBC.

What does this mean for you?

A market sell-off is in the cards, as a run like this can’t continue forever.

Luckily, if you’ve been invested in the market over that same period, chances are a 2%+ sell-off won’t put a dent in the amount of wealth you’ve accumulated over that same timeframe.

Sell-offs are healthy for the market and can be market-buying opportunities.

It would be wise to keep some extra cash on the side to take advantage of a sell-off if we do experience one in the near future.

A Fool-Proof Way Of Retiring With Millions

Let’s address the elephant in the room…

The gamifying of investing.

This one Robinhood “investor” lost $315,000 in a day due to a bad 0 Days to Expiration trade (0DTE).

Scary stuff right?

What’s great about these platforms is that they make buying and selling stocks easy for the average person.

What’s bad about these platforms is that they make it so easy that people gamble away their hard-earned money with very little knowledge of what they’re doing.

To add more fuel to the fire, new investors are flooding the market after seeing crypto go parabolic, making tons of people boatloads of money overnight.

If you were one of the lucky ones to cash your lottery ticket on one of these shitcoins coins I’d love to shake your hand.

But while they were losing sleep over their incredibly risky “investment”, millions of other investors are generating a modest return through index fund ETFs and getting a good night’s sleep.

Here’s a live look:

So peaceful.

Actively Managed Funds Vs. Passively Managed Funds: What’s Best For You?

Actively Managed Funds

Actively managed funds involve frequent trading and rebalancing with the goal of outperforming the market.

It requires a high level of knowledge when it comes to market analysis, as fund managers use a bunch of different tools to squeeze out extra returns.

Unfortunately, 64% of large-cap fund managers failed to outperform their benchmark (S&P 500) in 2024 so far.

60% failed to do so last year.

Pros of Actively Managed Funds

• Responsive to volatile markets - actively managed funds give you the ability to move into more defensive positions like government bonds or cash when the market is volatile allowing you to prevent larger losses.

• Exposure to options - actively managed funds often give investors exposure to advanced trading strategies like options that can allow the fund manager to earn some extra income or hedge their portfolios.

• Tax friendly - a good fund manager will know how to use active investing strategies to offset gains for tax purposes.

Cons of Actively Managed Funds

• Fees - actively managed funds average an expense ratio of about 0.60% as of 2024, which is significantly higher than passively managed funds (0.12%) and can eat into your profits long term.

• Increased exposure to risk - some fund managers use leverage (or margin) to buy stocks, meaning you win big if they’re right, but if they’re wrong about the investment, your loss is twofold.

• Bandwagoning - fund managers may want to take advantage of trends in the marketplace to help their funds outperform benchmarks. For example, companies like Zoom or Peloton were hot stocks during the pandemic but slowly died off. The issue with trend-based investing is knowing when the trend has hit a plateau, and that’s something no investor can predict correctly 100% of the time.

Passively Managed Funds

Passively managed funds focus on buying and holding quality companies for the long term, more of a hands-off approach to investing.

This strategy aims to mimic the performance of large market indexes like the S&P 500 or NASDAQ.

I call this couch potato investing because it’s as lazy as it gets.

DD’s take: the majority of retail investors should be implementing a passive investing strategy, similar to that of a passively managed fund.

Pros of Passively Managed Funds

• Lower fees - with reduced trading, rebalancing and a more hands-off approach, passively managed funds offer much lower fees with an average of 0.12% in 2024. I’ve even seen fees as low as 0.03% for some ETF funds from Vanguard.

• Less exposure to risk - because passively managed funds track larger indexes, your fund will most likely hold hundreds (if not thousands) of companies, which helps decrease your portfolio’s overall exposure to risk.

• Higher average returns over time - over a 20 year period, about 90% of index funds outperformed their active counterparts.

Cons of Passively Managed Funds

• It’s BORING - yes, passive investing is boring. But it works. You won’t see your account value go parabolic and make you a millionaire overnight. But you will build slow and steady wealth.

• No alternatives when sh*t hits the fan - because this is a long-term choice, there’s no exit strategy when the market starts falling. A passively managed fund won’t implement options trading to hedge your positions or squeeze out some extra profits. You’re at the mercy of whatever index your fund is tracking.

My Personal Favourite: The S&P 500

The S&P 500 is one of the most-watched indexes across the globe and tracks the 500 largest companies (by market capitalization) in the United States.

Here are the top 10 companies by index weight in the S&P 500. When you buy into a fund, you become an owner of the following companies (plus 490 other large-cap stocks across the U.S.)

Crazy S&P 500 Stat

If you had invested $100 into the S&P 500 in 1900, you would have about $12,615,917.44 by the end of 2024 (assuming all dividends were reinvested).

That comes to a total return of 12,615,817.44%, or 9.90% per year.

This investment result beats inflation during this period, which averaged about 2.96% per year.

Your inflation-adjusted return would have been 6.94% per year.

By looking at the chart below, you can get a good representation of how many times since 1928 the S&P 500 has given investors a positive return.

The answer is 73% of the time.

Final Notes

The easiest way to invest and retire a millionaire is to buy passively managed index funds and chill.

There’s nothing flashy about it. It’s boring. So boring in fact that when you tell your friends about your strategy they will fall asleep.

But at the end of the day, you will be the one retiring a millionaire while they continue to chase home runs.

The most successful investors focus on hitting consistent singles when they get up to bat.

See you in the next one!

Alex (The Dividend Dominator)
Founder and CEO of Dividend Domination Inc.
Follow me on Twitter, Instagram and LinkedIn

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