Passive Income: Investing In Index Funds For Beginners

If you have no clue what an index fund is or how to invest in one, in this post, I answer 7 questions that briefly cover all you need to know to start investing.

Let me begin by saying that investing in the stock market is one of the topics I have been avoiding to get into (there’s a list of them) because of how intimidating it felt. I had absolutely no clue what to do with this and every time I try to read about it, I get a headache!

However, eventually, I reached a dead end because I couldn’t find another topic for this week. And I figured I’ll have to get into this eventually if I wanted to properly create a diversified investment portfolio.

If you look at any established investor, you will find that they have to have money in the stock market, one way or another.

Diversification is a protection against ignorance.

Warren Buffett

But since I am a beginner, I’m not going to jump in and start buying individual stocks all by myself, then cross my fingers and hope for the best. I figured I should start with the beginner’s level for stock investments: Index Funds.

Investing in index funds is the easy and safer route to take if you want to invest in the stock market but lack the experience and knowledge it takes, or if you simply don’t feel like taking the risk.

And it seemed like the second best investment to get into after real estate for me. So I decided to look more into this as someone who has never been anywhere near the world of stock market.

If you too have no idea how to start in this kind of investment and maybe considering giving it a try, then this post is for you.


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What are index funds?

An index fund is a type of mutual funds, it is like a collection of funds that follow the performance of a number of different markets/companies, packaged together into a single fund called an index fund.

So, instead of making a choice and buying a fund in individual stock (which requires a great knowledge of that specific stock and its chances of rising or falling in price), you buy a bunch of them into one single fund.

This means more exposure to the stock market, however, with less risk.

Who should invest in index funds?

Anyone can invest in index funds, you don’t need to have extensive knowledge in the stock market as a whole.

You do, however, need to have some basic understanding of how this works and how to choose where to buy your index funds and which funds to buy.

The lower the price of the fund and the account expenses, the higher the profit you will make. And the more broad and diverse the stocks held by the index fund, the less likely you are to face losses.

You also need to know that investing in index funds is mostly a long term investment. Meaning that you need to be willing to hold on to that fund for a while (5-10 years and sometimes more) before you see real profits.

This is usually the long-term investment suggested for retirement, similar to retirement accounts.

What are the types of index funds?

Index funds can be classified into:

  1. Stock index funds
  2. Bond index funds
  3. Commodity index funds

In this post, I’m mainly focusing on the stock index funds. However, I briefly went over the commodity ones in both Investing In Gold (ETFs & stocks)and Investing In Real Estate (funds). You can check them out for a quick overview.

As for stock index funds, these can also be classified into a number of types:

1. Broad market index fund

This is when an index fund is following the performance of an entire market. Famous examples of such funds are ones following the performance of the S&P 500 or Dow Jones.

2. Sector index fund

This is an index fund that follows the performance/profits of a certain industry in the country, such as the banking sector, the real estate sector, or a more broad sector like technology, etc.

3. International index fund

This one is an index fund that follows a number of companies from different countries.

It does not follow the performance of the stock market of these countries, but the performance of the companies whose stocks are part of the fund.

4. Global index fund

This follows the performance of the stock market of a number of countries. This index fund has main stocks from different nations, such as the FTSE 100 for Britain or the EGX 30 for Egypt.

How to choose an index fund?

There are a few things you need to consider and decide on before you take the step and buy an index fund.

Type

First thing you need to decide which type of stock you want to follow.

Do you want to follow the global stock for multiple countries? Or would you rather go for a certain industry’s performance, like banking? Or ones that track currencies or metals, like gold and silver?

There are plenty of options, and if you are not sure which one is to choose, you should go for ones that cover a bigger and broader market.

Fees

Before you buy an index fund, you should check first what kind of fees you will need to pay.

There are commission fees that gets deducted from your profits periodically, you may need to check the percentage and see if it is low enough for you to still be making a profit.

There are also some brokers or index fund companies that charge you to create an account, you will also want to consider this charge.

One last thing is the trading charges. How much you will need to pay to buy or sell your funds (you can buy or sell an index fund at the end of the trading day only).

Broker

In most cases, you will need to buy a certain index fund through a broker or a brokerage firm. You can invest through a brokerage firm locally or go with an online broker.

It is important that you first research this broker and read what other clients have to say about their service.

You can read more about how to choose the right broker here. Or you can find out about international online brokers instead.

How much money do you need to invest in index funds?

Investing in an index fund is known for its low cost. And this is because it is basically holding all the stocks in one package instead of hiring a professional to pick the right stocks to buy. So, that leaves you with not much expenses to pay.

The price for an index fund varies based on where you are buying it from and which fund type you are going to invest in.

Some index funds has no minimum amount required to start and others can have a minimum starting amount of $2000, $3000, or more.

So you can invest with an amount anywhere between $10 and $10,000. But it goes without saying that the more money you put in, the more profit you will make along the years.

However, you can start out with a small amount and keep adding to it every few months or so. You can check this list of the cheapest index funds to buy.

If you invest in a very low cost index fund-where you don’t put the money in at one time, but average in over 10 years-you’ll do better than 90% of the people who started investing at the same time.

Warren Buffett

What are the best index funds to buy in 2019?

Since I’m no expert, I did what any beginner would do and started doing research. And I found that there are a number of index funds that are always at the top of every list of best index funds to invest in. They are mostly the ones with the lowest fees and low to moderate charge for opening an account.

This is a list of index funds that are suggested by most stock experts/advisers (in order from lowest to highest annual expense ratio).

  1. Fidelity Spartan 500 (0.015%)
  2. Schwab S&P 500 (0.02%)
  3. Schwab Total Stock Market (0.03%)
  4. Vanguard S&P 500 (0.04%)
  5. iShares Core S&P 500 (0.04%)
  6. Vanguard Total Stock Market (0.04%)
  7. Vanguard Total World Stock (0.10%)
  8. Bloomberg Barclays High Yield Bond (0.4%)

Some of these funds you can invest in from anywhere in the world; however, depending on your country, you may need to invest through a local brokerage firm and not directly through the index fund provider.

What are the available index funds in Egypt?

As one of the largest and most developed countries in the MENA region, Egypt has a huge potential for economical growth and many opportunities for investment.

If you are a resident of Egypt and want to know which funds you can invest in locally, or if you are not a resident and simply want to invest in funds in Egypt, below is a list of some of the funds you can consider:

You can also check this article out to have an idea of the top ranking funds in Egypt for this past year and how much profit each made.

Till next week, happy days!

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The Versatile Blogger Award

I usually post on Saturdays, but this is a different and special kind of post.

I have been nominated by the amazing Erin Goddard (Baby Steps) to receive the Versatile Blogger award. And I must say it is such a joy and an honor to be recognized by your fellow bloggers! So, thank you so much for this, Erin!

Erin’s blog has some out-of-the-box ideas for co-parenting and growing together as a couple and a family. She is also the nicest and kindest (and probably the smartest, given her love for math) person you will ever meet. So, make sure to check her blog out!

About the award

The Versatile Blogger award is a way of bringing recognition to bloggers who create versatile, inspirational, and enjoyable content. When nominating a blogger, you put into consideration the effort they put into the writing and the uniqueness of the subjects covered.

Rules of the award

  • If you are nominated, you have been awarded the Versatile Blogger award.
  • Include a shout-out to the blogger who nominated you with a link to their blog.
  • Share 7 facts about yourself.
  • Nominate 10-15 blogs/bloggers that you have recently discovered or follow regularly for the Versatile Blogger award.

7 facts about me

I am not entirely sure what kind of facts I should be posting here. So, here is some random stuff that no one really needs to know.

  1. I know this can cause a lot of frowns, but I do not like cats. (And I’m being delicate in my expression here when I say “don’t like”; my feelings are quite more aggressive than that.)
  2. I was born left-handed, but not anymore.. (thanks, Mom!)
  3. Arabic is my first language. (Adding this because I’m not sure if it’s obvious or not.)
  4. I have never been on a train.
  5. I love food. All of it. (But I can’t eat most of it because I have one angry stomach here!)
  6. This may or may not cause more frowns, but I haven’t watched any (an episode or a film) of the following: Harry Potter, Game Of Thrones, Star Wars, or Star Trek.
  7. Ich spreche ein bisschen Deutsch.

List of 10 bloggers I nominate

The blogs below (in no particular order) are ones I genuinely enjoy reading and believe they so deserve to receive such nomination. They are run by bloggers who are obviously passionate about creating the best content for their blogs.

So, without further ado, here are the nominees for the Versatile Blogger Award..

(And the Oscar goes to…)

Sorry, this post is sharing more facts than it should.

Nominees!

Again, thank you Erin!

Till the next awards season, happy days!

The 5 Dangers Of Sitting In A Bad Posture For Hours

Sitting for too long is bad for your health. Sitting for too long in the wrong posture is A LOT worse.
Read about the dangers and what you can do to avoid them in this post.

A post on health might seem like an odd topic to find here given the theme of this blog; however, this topic is directly related to my journey. In fact, the entire thing is dependent on it.


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Working on this blog is something I do while sat down. But it’s not just that, almost everything I’m doing, I do while sitting down starring at something, either reading for studies, writing assignments/homework, working on every single job I’ve ever had, watching TV, typing a blog post, researching a topic, or just scrolling through social media pages, etc.

That is a lot of sitting down! And this can be seriously dangerous if you are not paying attention to how long you are doing this and the way you are actually doing it.

I have been suffering from neck and shoulder pain for quite a long time, but only in recent months did it become so intolerable that I was forced to do a checkup, to find I have severe tight neck muscles and some kind of irritation in my cervical spine nerves (aka a pinched nerve).

An irritation in the cervical spine causes “pain that radiates into the shoulder, as well as muscle weakness and numbness that travels down the arm and into the hand.”

I have been taking medications and getting ultrasound therapy. But it’s not like the flu; and it doesn’t go away that quickly or that easily. I have been getting treatment on and off for the past 5-6 months. And many of the medications I have taken had some nasty side effects. So this is no walk in the park, it is bad and painful.

And I must say that, for the most part, I have been entirely dependent on the medications alone to do their magic and fix this, without much effort on my part.

But I’ve reached to a point where I got sick and tired of always being in horrific pain whenever I have to use my arm to carry something or, mistakenly, lean on it when I’m getting out of bed and feel as if a power drill is punching a hole through my shoulder.

So, I started to do some reading into this to try and find things that I can do on my part, to help fix this along with the medications.

But, first, let me tell you how bad this can actually get and why you should pay attention too!

How Sitting For Long Periods Of Time Affects Your Health

Sitting is the new smoking is a study made in the US claiming that sitting for one hour straight is as unhealthy as smoking two cigarettes.

They explain that sitting still for over 6 hours a day is as unhealthy for your body as smoking a pack and a quarter of cigarettes in a day. 

And that according to a study focused on the causes of chronic diseases, it is found that sitting for long hours is the number one contributer to developing a chronic disease (in the US).

Another study conducted by a number of leading professors in the UK was made on sedentary behaviour and its effect on both young and adults. And it concludes that sitting for long durations of time can cause obesity, type 2 diabetes, cancer, cardiovascular disease, and early death.

How To Avoid These Issues

It is highly advised that in order to avoid the serious health issues that accompanies sitting for too long, you should have a break every 30 minutes.

So every 30 minutes you need to get up for one or two minutes; you can do some stretches, walk to get a drink, or just do any kind of movement to break the idle position that your body has been in for the past 30 minutes.

There are some apps that are created specifically to help you do that, or you can simply set a timer on your phone for 30 minutes to work as a reminder that it’s time for you to move.

5 Ways A Bad Sitting Posture Affects Your Health

Image by medicaldaily.com

As per multiple studies and scientific researches made on the negative side effects of sitting in a wrong posture, it is found that your sitting posture can affect you in many more ways than just the way your body looks.

1. Back and spinal column

Starting the list with the more obvious problem that arises from sitting in a bad posture: back pain.

Sitting in a wrong posture can cause pain in the upper back, lower back, and the neck. The pain can also spread to include your arms, hands, legs and feet, depending on the part affected in the spinal column.

One of the medical conditions it can lead to is a pinched nerve.

Beside the fact that it causes a lot of pain, a pinched nerve, if left untreated, can cause chronic pain and permanent nerve damage which can lead to a disability, depending on the area controlled by the affected nerves.

And it is quite alarming to know that, according to this research, for every 2.5 cm your head moves forward, you add 0.45 kg of extra wight on your spine. A human’s head weighs between 4.5 and 5.5 kg.

So, if you are starring down at your phone, for example, that is about 13 cm of leaning forward which adds 5.85 kg of extra weight on your neck and spine. Adding to that the actual head weight, and you get an average of 11 kg of weight that is being dragged by your neck and spinal column. That is also the average weight of a 2-year old child.

2. Lungs and breathing

When you are sitting in a pitched forward position, the lungs slump forward and become compressed with the diaphragm moving up further in the chest which decreases the amount of oxygen entering your lungs by 30%.

Decreasing your oxygen intake, in turn, affects your energy levels and your ability to concentrate. It will also lead to feelings of fatigue and cause headaches.

3. Blood pressure

According to a study made in the UK, scientists found that sitting in the wrong posture where your shoulders and back are slouched is likely to affect your blood pressure.

The neck muscle cells signal the brain when sensing movement in the neck, to ensure adequate blood supply as the body changes posture. This system, however, breaks down when cells incur damage from poor posture, resulting in blood pressure either higher or lower than optimum.

4. Digestive organs

Sitting in a slouched posture compresses the digestive organs which can make them incapable of functioning properly. It slows the movement of your intestines which can cause digestion problems such as bloating or constipation.

This effect on digestive organs can also impact your metabolism.

5. Mental health

From my own take and what I noticed, when you are slouched in your chair, it creates a feeling of laziness and sometimes you’d feel down or easily irritated, unlike when you are straightened up, it feels like you are more open, awake and active.

And according to this research publication, the posture in which you are sitting does indeed affect your mood. A bad/slouched posture leads to being more prone to and easily affected by negative thoughts and emotions; while sitting in an upright position reduces stress and generally enhances the person’s mood and their mindset.

And as another experiment concluded, people that sit in an upright posture tend to easily remember more positive memories and have positive thoughts than those in a bad posture.

What Is A Good Sitting Posture?

There are a few things that you need to pay attention to when you sit down in order to make sure you are in the right posture.

  • Your feet should be flat on the ground with your knees making a right angle and are at the same level as your hips or slightly lower.
  • Your back is straight and chest is stretched so that your shoulders are not slouched/arched.
  • Your head is positioned where your chin is parallel to your hips and your ears paralleled to your shoulders.
Image by medicaldaily.com
A video by posture coach Michelle Janice showing how to sit up straight.

4 Things To Help Maintain A Good Sitting Posture

All that doctors have been saying over and over is that I should keep a good posture, “try to always sit with a straightened back and stretched
shoulders and don’t lean forward with your head.”

So, I am completely aware that this is what I am supposed to do. But how do I keep that posture for the entire 5-7 hours I am sitting on my laptop?

I’m only able to maintain this position when conscious about my posture, but then I get distracted with what I’m actually doing and, an hour later, I find myself back to the hunched-over-the-laptop position with slouched shoulders and forward neck again.

This happens because, to me, this is the more natural and comfortable position, where I don’t have to be all the way stretched. So, I needed a more practical solution.

Here are 4 things I do that can help keep a good, healthy posture for as long as you are sitting.

1. Sit on a cushion

Because sometimes the desk and chair I’m sitting on are not in good alignment where my arms and elbows are in a perfect straight line position.

In my case, it is usually that the chair is lower than the desk, and so I sit on a cushion which helps me maintain that position.

2. Roll pillow behind your back

This has been a real savior. Because, like I mentioned earlier, it can get really uncomfortable when I try to keep my back in a straight position for a long time, so putting a roll pillow* or roll cushion behind my back works as a support for the middle part of my back which both makes me feel way more comfortable and it sort of automatically enhances the way I’m sitting anyway without much effort on my part.

But even when I tend to slouch a little bit, it also works as a continuous reminder to get back to the right position.

3. Place the laptop at an arm’s length

This could be something that most people do already, but I only realized that recently and, oh my god, it is such a relief when I type now.

I have always had my laptop placed right at the edge of the desk and so my arms and elbows are usually just hanging the entire time I’m typing, which causes more pressure and therefore more pain in my shoulders.

How to make sure that you are in a good, comfortable posture where your arm is always supported is if you push the laptop far on the desk, so that your arms up until your elbows are supported by the desk itself and then type that way.

There is also a really helpful video that shows even more ways to help you keep a good posture, not just while sitting on a computer but when watching TV, playing games, or using your phone. You can watch it here.

4. Set a timer

Setting a timer to alert you every 15-20 minutes can work as a reminder to both move around or straighten up and correct your posture. There are even some phone and computer apps that can help you do this.

But if you are not interested in an application, you can simply create several alarms on your phone, or a timer every 15-20 minutes, as a posture reminder.

5. Stretches

One of the things that can help maintain a good posture at all times is if your body feels relaxed and comfortable at that posture. And one way to get your body to that level of comfort is if you do certain stretches that help with the back and upper body’s flexibility, so that keeping a straightened back and stretched shoulders no longer feels uncomfortable or weird (or, like me, makes you feel like a cyborg).

Below are some example stretches that I do. You can find more of them and information about each pose and its benefits here.

Standing cat-cow. Image by yoffielife.com.
Active child’s pose. Image by yoffielife.com.

Downward-Facing dog stretch. Image by forteyoga.com

Standing forward fold pose. Image by forteyoga.com

And eventually, if you are already suffering (like me), here are a few things to help with that too.

5 Things To Help Relief Back Pain

1. Heating pad

Placing a hot water bottle* or a heating pad* (this is the one I use) on the area of your back or neck that hurts can reduce the pain, because the heat relaxes the muscles and speeds the blood flow to that area. This is one of the things that I have been advised to do for my neck and shoulder pain and part of the physical therapy treatment I am getting.

2. Herbal cream

There are some herbal creams available that help ease muscle pain. They are made entirely of natural ingredients; however, you should still consult a doctor before using any.

You would simply take a sufficient amount of cream on the tip of your fingers and start applying it on the affected area. It can work even better if you do so after you have applied the heating pad.

3. Massage

A massage, especially in the neck and shoulders area, can work as a great pain relief because mostly the pain in this area is caused by the pressure put on those muscles to hold your head. So, by massaging that area, you help those tightened muscles to loosen and relax.

You can simply massage the area with your hand, go to a spa, or you can buy a massager that you can use at home or at work. (I found the latter to be a more convenient option and so I use a similar Shaitsu massager to this one*).

4. Stretches

Doing the same stretches above can also help relief back pain. But you can find more exercises related to relieving back pain in this article.

5. Medical treatment

This is of course an obvious step to take if you are indeed suffering from such pain, because leaving it untreated for a long time can cause even more damage which would take a longer treatment period or worse, could cause a permanent damage to your body.

So make sure you consult your doctor to get the right advice and treatment needed for your situation.

Till next week, happy days (and healthy bodies)!

*Disclaimer: Links with* are affiliate links. Meaning that, at no additional cost to you, if you purchase through one of these links, you are supporting me to get a small commission from this sale.