In January 2021, millions of young Americans were exposed to the world of investing when the infamous subreddit r/WallStreetBets burst onto the front pages of newspapers and news channels. 

This event was emblematic of a larger cultural shift in younger Americans’ view on investing, from one of investing being a complex activity reserved for middle-class older Americans to an easily accessible, low-entry cost activity for any age. Its short squeeze of GameStop’s stock caused shares to increase 30-fold. During GameStop’s brief spike, many first-time investors rushed in to join the fray, hoping to capitalize on the historic squeeze even though they lacked basic investment knowledge. 

The GameStop episode spelled out the dual-sided nature of investing: Millions can be as quickly made as lost. While a select few investors such as Keith Gill, also known as Roaring Kitty, reaped massive returns, many more novice investors lost tens of thousands of dollars, if not their entire savings. What many investors did not realize is that investing can make you millions, but it takes decades of financial prudence and patience. 

The Sooner the Better

Upon speaking with friends and colleagues, I grasped that many subscribed to the popular notion that putting all your money into the market and micro-managing your portfolio will make you a millionaire quickly. Such a view is not only financially foolish but also extremely dangerous. As a college student, it is a bad idea to invest the money you will need within several years; the market is too volatile within any period less than a year, and investing in any stock for fewer than a couple years is risky. 

Given market volatility, young investors are advised to put their money into savings accounts, money market accounts or certificates of deposit (CDs). Money market accounts are a type of interest-bearing account that offers higher interest rates than savings accounts but come with restrictions on checking and withdrawal. Meanwhile, a CD is an account that provides a high interest rate in exchange for the customer agreeing to leave their deposit untouched for a specified time period. 

If planned properly, investing can yield massive returns in the long run while minimizing risk. Investing now can help young people achieve long-term financial goals such as buying a house, starting a business, retiring early or funding a child’s college education. College students have time on their side and the longer you have to invest, the bigger the reward in the future. 

Many people I know might balk at the idea of investing given their relatively low income during college, yet contributing meager amounts right now can yield massive rewards decades later. If a 20-year-old student invested $1,000 now and then contributed $100 monthly for 20 years with an annual return rate of 8% per year, their investment would be worth $160,000 by 2050. 

That’s why I argue that more students should begin investing now. Investing is not hard; you do not have to be a hedge fund manager with a Ph.D. or an MBA from Harvard to invest successfully. All you need is simplicity and prudence. 

Passive investors generally buy and sell less than their active counterparts in order to take advantage of the stock market’s long-term growth.

John Bogle and the Index Fund

In 2008, Warren Buffett challenged hedge fund managers to a bet: He bet a million dollars that he could outperform actively managed portfolios run by the brightest minds on Wall Street with a mere S&P (Standard & Poor) 500 index fund (a portfolio of stocks or bonds designed to mimic the composition of a financial market index). Buffett wanted to prove that a hedge fund’s outrageous fees did not justify its performance. Over the next 10 years, Buffett’s simple index fund outperformed the handpicked portfolio of Protégé Partners and laid bare the age-old conflict of investing strategy: Is active or passive investing superior?

To give a brief rundown of both strategies, active investing involves a proactive approach whereby a portfolio manager or the individual investor actively manages their portfolio to beat the market’s annual returns and take advantage of short-term price shifts. Active investing generally entails more stock analysis and a deeper knowledge of the market before buying or selling a stock. 

Passive investing takes the long road. Passive investors generally buy and sell less than their active counterparts in order to take advantage of the stock market’s long-term growth (years or decades compared to months or weeks). Passive investors mostly shy away from picking individual equities to invest in, regarding the risk ratio as being too high, and overall prefer index funds that track the performance of the entire market. 

Instead of trying to beat the market, Bogle argued, the average person would achieve higher returns and lower costs by investing in an index fund over decades.

To Jack Bogle, passive investing equaled the most success for the average investor. Bogle, founder of the investment adviser Vanguard and creator of the world’s first index fund, preached the low-cost index fund held over decades versus the short-term strategy of actively managing one’s portfolio. 

Instead of trying to beat the market and incurring high expense fees and increasing risk, Bogle argued, the average person would achieve higher returns and lower costs by investing in an index fund over decades. An index fund allows an investor to avoid putting all their eggs into one basket. A fund such as the Vanguard U.S. Total Stock Market Index Fund diversifies one’s money across the total U.S. stock market, investing in hundreds of companies in multiple industries all at once. 

By purchasing a fund like a U.S. Total Stock Market Fund or International Total Stock Market Fund, an investor can replicate the average annual growth of the market as a whole. This diversification lowers the inherent risk in investing in a singular company that could destroy one’s entire portfolio if the company suffered significant losses. 

All it takes is some thought and discipline to follow a simple, sound strategy in the long run.

Studies of money manager performance have shown that nearly 90% of managers failed to beat the market average — if an investment banker with a million-dollar salary and access to the latest Bloomberg Terminal cannot beat the market, it is unlikely the average person can either. Being average doesn’t sound too bad now, right? 

A three-fund portfolio consisting of a U.S. Total Stock Market Fund, International Stock Market Fund and the U.S. Bond Market Fund reduces the complexity of investing to a yearly asset rebalancing and the regular injection of money to your portfolio. You do not have to read Barron’s or watch the latest financial shows daily to invest. All it takes is some thought and discipline to follow a simple, sound strategy in the long run.

Stay the Course

You might be wondering what you should do with all this information. Do I jump right into investing and buy these funds or do I do individual research to ascertain my own personal strategy and goals? 

The information I provided here is merely a dip in the lake of the Boglehead Method and financial philosophy. For those readers interested in either changing their investment strategy or getting started for the first time, I recommend some online resources and books to consult before risking your money. The core book I recommend is Taylor Larimore’s The Bogleheads’ Guide to the Three-Fund Portfolio, followed by an in-depth dive into the Boglehead Wiki. 

The millions you can make from investing do not come overnight, but rather through frugal living, prudent saving, consistent investing and staying the course.