3 Ways To Make $100 a Day With Index Funds, According to Money Expert Graham Stephan

Money expert Graham Stephan has a formula for making passive income by investing in index funds that could generate $100 a day with virtually no effort. Here’s what you need to know.

Why Buy Index Funds?

Stephan explains that when you buy index funds, rather than buying a single stock of an individual company, you are buying a small portion of each fund in the index. You get the benefits of the entire market automatically.

Stephan uses the example of someone who owns a thousand apartments, each of which is worth $1,000. You could buy one of them for $1,000 and own a single apartment. But first, you’d have to research all of them to figure out which one is the best. If you bought just one, it could have bad plumbing or the tenants could move out and you’d have trouble finding new tenants, or any one of a number of things could go wrong that would cost you money and reduce the return on your investment.

Or, you could invest $1,000 and own 0.1% of all the apartments in the portfolio. By doing this, you participate in the appreciation of all the of the apartments instead of just one. You would get the average return across all of the apartments. If there were problems with a few, the appreciation of the others would more than make up for it.

The same is true of index funds. Rather than purchase stock in a single company, which could go down, you buy a little bit of a lot of companies, which are far more likely to go up in value over time. Plus, you avoid the fees that professional portfolio managers charge, and, by buying and holding, you take away the temptation many investors have to time the market.

How to Make $100 a Day Investing in Index Funds

Investment returns are passive income, but that doesn’t mean you don’t have to do some work up front. It will take you some time to set up your system that will eventually drive passive investment returns of $100 a day or more.

Here’s how to do it.

1. Look for Dividends

Stocks can make money for investors in two ways: the price of the stock appreciates, and the company can pay dividends to shareholders on a quarterly or annual basis. Buying an index fund that included dividend-paying stocks is a great way to boost your return. The S&P 500, for example, pays about 1.26% in dividends. Some real estate index funds pay 2.5% in dividends. You can even buy a high-yield dividend index fund which could pay 7% or more.

For every $1,000 you invest in a dividend-producing index fund, you could get back between $20 and $70 dollars each year, even if the price of the fund remains exactly the same.

Be sure to reinvest the dividends rather than taking them in cash – this results in a more favorable capital gains tax rate, plus you’re buying more shares of that passive-income-generating index fund.

2. Be Patient

Patience is the investor’s best friend. Historically, the market always goes up over time, so if you leave your money invested, other investors will come along and bid up the price of the fund you’ve purchased, making your shares more valuable. The S&P 500 has appreciated an average of 10% per year, which means your $1,000 investment becomes $1,100 after one year, on average. The next year, it goes up another 10%.

There will be ups and downs, and that’s where the patience comes in. Start early, and leave your money invested.

3. Invest Regularly

Clearly you won’t be making $100 a day in passive income if you just invest $1,000 at leave it there. But if you invest on a regular basis, you could get to that point.

If your portfolio grows an average of 8% per year, you could take out 4% each year and not run out of money, according to the often-cited 4% rule. To do this, you would need $920,000 invested in an index fund. Investing $10 a day will get you to $920,000 in 38 years. If you are 27 years old and start investing $10 a day, you could take out $100 a day starting at age 65 and never run out of money.

Of course, if you can invest more, you can speed things up. Investing $20 a day gets you there in 30 years, and $50 a day gets you there in 20.

The important thing is to keep your eyes on the prize and don’t waiver from your goal. That’s the best way to build up that portfolio to the point where it’s providing you $100 a day of passive income.

More From GOBankingRates