 Good day, fellow investors. Five things anyone that invests in index funds should know. The first thing is investing in index funds is extremely risky. Now everybody is saying that investing in index funds is the safest thing you can do. And here I come and say investing in index funds is extremely risky. Am I crazy or is everybody else crazy? Let's see. This is the SAP500 index over the last 20 years. It went up 106 percent, then it fell down 49 percent, up 101 percent, fell down 57 percent, up 272 percent, and then it fell 70 percent. Oh, it didn't yet fell. But looking at what happened in 2000 and in 2009, it might fall again. Such declines are for me extremely risky, whatever anybody else says. And yes, the stocks have recovered after 2002 and 2009, but those stocks have recovered because the Fed started printing money and putting money everywhere in the economy. Now interest rates are very, very low. There could be a lot, a lot of different experiences in the future, especially if we get to stagflation. Remember the future will rhyme, but it will just rhyme. It will be different in some way from the past. However, let me state that investing everything you own in index funds is extremely risky. Better diversification is necessary than just index funds. You can take a look at the all weather portfolio video I have made to see what a strategy all weather is and how it differs from index fund investing. As I said, the stock market doesn't recover always and immediately. Those who invested in 1921 had to wait 31 years for the SAP 500 to come to the level that it had been in 1929. Similarly, if you adjust the returns for inflation, which is something very important to think about, you would have waited 65 years from 1926 or 66 years from 1929 to just break even. From 1964 you would have waited 30 years to break even and from 2000 you would have waited 17 years to break even on your investment. Now we are eight years in a bull market. From my perspective, just my personal perspective, there is a huge risk that you might again wait 30 years to see the SAP 500 again to break even at this level. It is possible. Nobody knows what will happen. However, that is a risk. Therefore, I say investing just in index funds is extremely risky. However, there is one strategy that makes index fund investing less risky and that is dollar cost averaging. So you invest a fixed amount of money or a fixed percentage of your income into an index fund, no matter what happens in the stock market, no matter what happens in the economy, and you constantly invest that money in the very long term over your 45 year working career. After 45 years, you will be very, very well off. However, that is the only way to invest in index funds properly with less risk because you will invest, yes, when the index funds are high, but you will also invest when the index funds is cheap. And that cheapness will give you extreme returns over the long term. If you listen to Buffett, he says invest in index funds, but only if you do it consistently over a long period of time. And this means that you also do it before a recession. You don't start saving cash, not investing in order to save something if you lose your job or something like that. So the most important thing is to really invest when there is trouble, when there is a recession, even if you might lose your job. If you don't invest at that point in time, you end up as the average investor. And that's why again, I emphasize how investing in index funds is very risky for the average investor. Here is a table from JP Morgan. You can see that in the last 20 years, the SAP 500 returned 7.1%. However, the average investor got only 2.3%. Where did the 5% yearly return difference go? It went in market timing and buying high and selling low, which is what average investors do, especially those who over invest and don't understand the reward and the risk of index fund investing. So really understand the risk or reward, really understand how much you can invest in it, and really understand that the highest return from index investing comes from dollar cost averaging over time and investing in the worst periods. Second thing, now everybody's saying the stock market returned so much over time, so much, it's the best investment out there. Yes, it was, but it isn't anymore, because the dividends of the stock market index are extremely low now. Look at the historical SAP 500 chart. The current dividend yield is 1.82%. The average was 4% over the long term, and we have had peaks of 6, 7, 8, even 14% in the 1930s, and 6 and above percent in the 1980s in the periods of high inflation. Now 1.82 is really, really low, and that will really have a negative effect for those who invest now in simple SAP 500 index funds that are considered the most safe investment by most, and also recommended by financial advisors, banks and whatever. However, there is a big difference between the past and the current situation. The third thing I want to discuss is that you should use, if you want to invest in index funds, you should use Vanguard funds and not ETFs. ETFs are made for trading and liquidity, and as said before, in the dollar cost averaging section, you want to invest when there is trouble, when there is blood on the streets, and you don't want to have the ability to trade your ETFs. You pay a fee when you trade like a stock, like you trade stocks, and you pay a higher fee on the ETF than Vanguard. So really invest somewhere where you cannot touch your money when you're forced to invest there every month, because that's the best way to invest in the long term in index funds. Something very interesting is that if we look at Vanguard and their web page, you can see that they have started changing the investing world since 1976. This means that index funds investing is extremely young when you look from a long-term investing perspective, and that means that it hasn't been tested in a different investment environment. Since 1982, interest rates have been only declining, which means that the value of assets go up. So we haven't really seen and we haven't really tested index investing in an environment of 40 years where interest rates go up and stocks go down. So you might really want to adjust that to your risk reward investment scenario and don't expect that what happened in the last 45 years will repeat itself in the next 45 years. Those who expect that are in for a big, big surprise. This is the SAP 500 from 1982 to 2017. As you can see, it went only up from 100 points to the current 2,600 and what points. So the success of index funds is closely related to the success of the SAP 500 and perhaps even the success of the SAP 500 is closely related to the success of index funds. As always, reflexivity in the stock market is very, very high. The fifth very important thing is that you are not well diversified if you invest just in index funds. You need to have stocks, different kinds of international stocks, real estate, commodities, businesses, private equity in order to give you a good diversification as an especially one that's uncorrelated and one that will give you enough income, passive income to invest especially in the troubled times and then rebalance accordingly in those baskets. Again, look at the old weather portfolio that can be always expanded with other investment classes. Perhaps even cryptocurrencies. Why not? Just to look at the SAP 500, 20% of the SAP 500 is in the top 10 companies and you can see here that five of the top 10 companies are in information technology. So if something happens in the information technology sector, then also it will affect very, very badly the SAP 500. And what is very important, the SAP 500 looks at the market capitalization. So you're always buying high and selling low because you buy now more and more of the biggest companies. You should have bought the information technologies companies in 2008, 2009, 2010 when they were still small. Now, if let's say Tesla succeeds, if you own the index funds, you will be buying Tesla 10 years from now. Now you just have a small, small, small part in Tesla. So it's very interesting how it's not properly diversified, is heavily overweight the strong stocks, the big stocks instead of looking at the smaller stocks that give the better yields. Another thing is that if you invest in index funds through your banker, he will get the fee, which is again a cost that you don't need to pay. If you go online, Vanguard, if you really want to invest in index funds over the long term, dollar cost average, then you can do it without paying any kind of fees. And the minimal, minimal Vanguard fee is 0.04% per year, which is very, very low if you have to invest in index funds. However, make that just part of your investment strategy because of the five points and the risks I have just shown you. Thank you for watching. Looking forward to the comments and I'll see you in the next video.