The DIY Investor's Guide to Building Your Own Index Fund (And Why It's a Terrible Idea)

Speaker 1 Acknowledge that you may not beat the SP. Acknowledge that your homemade stew, well being good, may lack the polish of a Michelin chef.

Speaker 1 But also acknowledge that in the act of cooking, you've learned more than the diner who simply ordered takeout or read about the latest culinary trends online.

Speaker 1 The SP and its cousins are masterworks of design, honed over decades. If you do go your own way, do it for the education, not the edge.

Speaker 1 Hello, friends, this is Tyler Gardner welcoming you to another episode of your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing.

Speaker 1 So let's get started and get you one step closer to where you need to be.

Speaker 1 I want to start by having you imagine walking into a hardware store and announcing with great confidence, you know what, Home Depot? I'd like to build my own refrigerator, please.

Speaker 1 The clerk would probably stare at you for a moment, hand you a wrench, and wish you the best of luck.

Speaker 1 That's more or less what it's like when an investor decides to build their own version of the S ⁇ P 500, or any fund for that matter.

Speaker 1 Technically, it's possible, admirable even, but also the sort of thing that ends with a lot of loose screws and an ice machine that will make a ton of noise and produce very few ice cubes.

Speaker 1 So in this episode, we're going to talk about the peculiar urge that many people have to build their own fund. I've had this urge.
I've acted upon this urge.

Speaker 1 And I've spent years working with my own funds.

Speaker 1 And honestly, I've had a lot of fun along the way and learned a ton about what works, what doesn't work, and what, bluntly, is incredibly redundant as there are already passively managed funds doing way more than I could ever or would want to ever do on my own.

Speaker 1 So, we'll talk about why someone might want to do this, how you could go about it step by step, and why, even if you never actually follow through, the exercise, or at least having the knowledge, is worth your time.

Speaker 1 Because beneath the sleek, efficient surface of your average index fund is a world of sectors, rebalancing, and hidden decisions that most investors will never see or know about.

Speaker 1 So, as always, the goal of this episode is to help educate, to make it a little less than absurdly boring, and to give you some practical tools that may help you in the next step of your investing journey.

Speaker 1 Now, before we get into it, my weekly ask, if you are enjoying the podcast, if you've ever found yourself laughing, groaning, or even rethinking your portfolio after one of these episodes, please consider leaving a review on Apple Podcasts.

Speaker 1 Or, better yet, share the episode with a friend, especially that friend who swears they're just about to start their own hedge fund.

Speaker 1 Reviews and shares are the easiest way to get this show in front of more people, and I'd be, and I already am, incredibly grateful. Here's the central tension of today's episode.

Speaker 1 Building your own fund sounds like a way to avoid even incredibly low fees and to take even more control of your own investing.

Speaker 1 But index funds, like those that track the S ⁇ P 500, are already doing more work behind the scenes than most people realize. The S ⁇ P isn't some sleepy set-it-and-forget it relic.

Speaker 1 It's an actively managed list, even though it's called a passive index, constantly pruning and adjusting.

Speaker 1 A financial version of the Wizard of Oz, where you eventually discover there's a committee pulling levers just out of sight.

Speaker 1 Still, building your own fund, or even just learning about how to do it, teaches you something invaluable. You learn how different sectors actually behave.

Speaker 1 Why technology is like Gatsby, glamorous but volatile, while utilities are more like Jane Austen, unflashy but relatively enduring.

Speaker 1 You see how benchmarks are constructed, how factors like value and momentum can add seasoning to your portfolio, and how much ego sneaks into your decision-making when you start tinkering.

Speaker 1 Most importantly, you see just how efficient and tax-smart the humble index fund really is.

Speaker 1 And maybe that's my goal here, to show us all time and again, as frequently as possible, that I have yet to find any way to invest that beats investing in a few boring index funds and calling it a day.

Speaker 1 Throughout this episode, we'll walk through five steps to designing your own fund.

Speaker 1 Number one, we'll start by introducing you to sectors, understanding the 11 drawers the market uses to file every single company.

Speaker 1 Number two, we'll talk about researching what are called benchmarks, peeking under the hood of funds like SPY and VOO that track the S ⁇ P 500, and we'll see what the pros do and what you're ultimately comparing yourself to.

Speaker 1 Number three, we'll talk about what's called tilt, which means just adding a little more flavor than what's in the SP 500, and we'll talk about tilting with purpose, whether it's by adding value, growth, or sector seasoning without turning dinner into a Dostoevsky novel.

Speaker 1 Then we'll build the fund. We'll use sector ETFs to create your own SMP clone and discover why rebalancing can actually become a full-time job.

Speaker 1 Finally, we'll talk about how to keep costs down and your ego in check.

Speaker 1 And we'll learn why the index is way more active than you think and why humility may be the cheapest and most practical asset you could put in your portfolio.

Speaker 1 By the end of this episode, you'll either be ready to launch the Tyler Gardner Growth Fund coming soon to a brokerage account near you, or you'll throw up your hands and say, fine, I'll just buy the index.

Speaker 1 Either way, I promise you this, you'll walk away from this episode smarter, more informed, and if all goes well, maybe slightly entertained regardless. So let's begin.

Speaker 1 How to build your own fund and why the real lesson might be that you don't need to.

Speaker 1 Know your sectors. If you're going to build your own fund, The first step is understanding the pieces on the board.

Speaker 1 The financial industry, being the orderly librarians they are, has divided the entire stock market into 11 neat categories called GICS sectors, global industry classification standard.

Speaker 1 It sounds good, but really it's just the market's filing cabinet. Every company gets put in a drawer somewhere, whether it's Apple under technology or Duke Energy under utilities.

Speaker 1 Here are the 11 drawers or sectors. Information technology, healthcare, financials, consumer discretionary, consumer staples, energy, industrials,

Speaker 1 materials, real estate, communications services, and utilities. Together, they cover just about every way human beings can find to make or lose money.

Speaker 1 Now, Each sector, unsurprisingly, has its own personality.

Speaker 1 If the stock market were a novel, as mentioned above, technology would be Gatsby, glamorous, full of promise, prone to throwing wild parties, and having equally wild crashes.

Speaker 1 Consumer staples would be more like George Elliot, steady, grounded, more concerned with bread and butter than fireworks.

Speaker 1 Energy often plays Heathcliff, brooding, volatile, capable of both passion and ruin. And utilities are the Jane Austens of the market.

Speaker 1 They may not move quickly, but they're quietly reliable, endlessly re-read, and always seem to survive the trend cycles.

Speaker 1 The point here isn't to get poetic, though that certainly helps on long trading days. It's to understand that sectors behave differently depending on the decade you're living in.

Speaker 1 In the 2000s, energy had its moment. Oil was booming.
ExxonMobil was practically writing the script.

Speaker 1 Then came the 2010s, the tech decade, when Apple and Microsoft turned into trillion-dollar behemoths and anything with an app seemed destined for glory.

Speaker 1 Consumer staples, your Procter ⁇ Gambles and Coca-Colas, tend to shine in downturns when investors prefer toothpaste and soda over electric vehicles and crypto exchanges.

Speaker 1 In other words, the key here is that sectors rotate even if you think one sector is forever here to stay. They take turns leading and lagging.

Speaker 1 Fidelity puts out annual sector sector performance charts that I would encourage you to look up that look like multicolored subway maps.

Speaker 1 Tech surges one year, energy the next, healthcare weaves through like a dependable bus route.

Speaker 1 If you're going to construct your own fund, you need to start by deciding how much of each sector you want in your basket. Are you building a replica of the S ⁇ P?

Speaker 1 A little of everything weighted by size? Or are you making a bet that certain sectors will outperform this year? This is the definition of active portfolio management.

Speaker 1 This is also where temptation starts to creep in. Because if you know tech crushed it last decade, why not overweight it now? If utility seems boring, why would I bother at all?

Speaker 1 The problem is that history has a bad habit of punishing certainty. Energy stocks were darlings in 08, dogs in 2014, and then had another rally in 22.

Speaker 1 Tech has rewarded patience, but also inflicted the dot-com crash. Consumer staples are dull until suddenly you realize dullness was exactly what you needed in a recession.

Speaker 1 This is why professional fund managers obsess over sector allocation, the composition of your portfolio, how much you put into each drawer is often way more important than the individual names inside.

Speaker 1 Owning Microsoft instead of Apple is far less significant than whether you own enough technology at all.

Speaker 1 Likewise, choosing Coca-Cola over Pepsi matters way less than deciding how much of your portfolio should be consumer staples in the first place.

Speaker 1 So, the first step in building your own fund is to map out these 11 sectors and recognize their cyclical natures.

Speaker 1 Each one has moments when it looks like Shakespeare's Hamlet, tortured, misunderstood, and doomed. And other times when it struts like Henry V, conquering everything in sight.

Speaker 1 The art of asset allocation and of building your own fund begins with knowing these characters well enough to cast them wisely. And remember, even the S ⁇ P 500 itself isn't neutral on this question.

Speaker 1 Its current composition is roughly 27% technology, 13% healthcare, 12% financials, and the rest spread more thinly across the other sectors.

Speaker 1 So when you buy the market, you're not buying an equal slice of every company.

Speaker 1 You're buying a novel with certain characters in bold font and others relegated to the margins, or even, dare I say, David Foster-Wallace style endnotes.

Speaker 1 And we all know most of us aren't reading those anytime soon. So that's your challenge in step one.
Learn the cast, study the cycles, and decide how much you want to weight each role.

Speaker 1 Because if you skip this step, you're not building a portfolio. You're buying random books at a yard sale and hoping they make a coherent library that you actually like.

Speaker 1 Section number two, let's start to research and learn about the benchmarks. Once you've met the cast of characters in the sector novel, the next question is, how do you arrange them?

Speaker 1 Do you give technology a starring role? Does utilities get a cameo appearance? This is where the benchmarks come into play. Benchmarks are essentially the director's cut of the market.

Speaker 1 And if you're going to build your own fund, you'd be foolish not to at least study them first.

Speaker 1 Let's take the SP 500, that venerable giant. Pull up SPY or VOO, two of the main ETFs that track it, on Morningstar, etf.com, or directly on State Street or Vanguard sites.

Speaker 1 Behind the curtain, you'll see the holdings, sector weights that we went over above, and the turnover. It's a bit like watching The Wizard of Oz.

Speaker 1 The booming voice and pyrotechnics are impressive, but behind it all, there's a committee in New York City deciding Sears is out and Tesla is in. Here's what you'll find.

Speaker 1 The SMP is what's called market cap weighted. That means the bigger the company, the bigger the slice of your pie.
Apple and Microsoft alone often make up more than 13% of the SMP.

Speaker 1 This is why owning the market today looks much more like a tech-heavy script than, say, in 1980, when energy and industrials were the stars.

Speaker 1 There are other versions of the same story. Look at an equal weighted SMP fund, and suddenly every company has the same billing.

Speaker 1 Apple gets the same screen time as a regional bank you've never heard of.

Speaker 1 It's the difference between a Hollywood blockbuster and a community theater production where everyone insists on the same number of lines.

Speaker 1 Both are technically the SMP, but the experience would be wildly different.

Speaker 1 Studying benchmarks doesn't just show you who's in the fund. It shows you the logic of how they got there, because indexes don't sit still.

Speaker 1 The SMP has had roughly 50 to 60 changes in its roster in just the past decade. Some companies get cut, others get promoted.
It's a perpetual audition process, ruthless and ongoing.

Speaker 1 Jane Austen would approve, just as her novels quietly revolve around who gets written into or out of the marriage plot. The S ⁇ P thrives on deciding who gets to remain in the eligible pool.

Speaker 1 Quick side note, this is also why when we reflect on the idea of whether or not the SMP would ever go to zero, it's almost impossible read impossible by its very nature.

Speaker 1 If companies start to waver, they're going to get cut, and new companies that are solving new problems will replace them.

Speaker 1 Now, here's the part too many DIY investors overlook when it comes to building their own funds. Tax efficiency.

Speaker 1 Indexes are extraordinarily good at minimizing taxable events because they rarely trade, and when they do, they do it with surgical precision.

Speaker 1 Funds like VOO are far more tax efficient than most active managers would ever be, and certainly more than a do-it-yourselfer who keeps second-guessing their picks.

Speaker 1 It's not just low fees that make index funds attractive. It's their ability to hold on to gains without triggering taxes year after year, or in many of our cases, day after day.

Speaker 1 So if you want to mirror a fund, this is where the homework starts. Choose your benchmark.
Let's say it's the S ⁇ P 500, or maybe you like the Russell 1000.

Speaker 1 Next, download the holdings, study the sector breakdown, look at historical performance, and ask yourself, could I replicate this with a handful of ETFs or even individual stocks?

Speaker 1 Could I pick the sectors and weights myself and arrive at something similar? Or am I better off simply admitting the professionals have already done the hard work for me and it's worth 0.03% per year?

Speaker 1 There's no wrong answer here. The exercise isn't about creating a perfect clone.
It's about understanding how the sausage is made. Think of it like reading the original stage directions for Hamlet.

Speaker 1 Sure, you could put on your own production in the backyard, complete with homemade swords and a plastic skull from Halloween, poor Yorick, but even if you never take it to Broadway, the act of reading and staging it teaches you a thing or two about what Shakespeare was probably aiming for.

Speaker 1 So step two is simple. Study the benchmarks like you'd study a script.
Learn the cues, see who gets the spotlight, notice who gets written out.

Speaker 1 Because until you understand how the market's great directors are arranging the cast, you won't know how to stage your own version without accidentally writing yourself into a tragedy.

Speaker 1 And we'll jump right back into it after a quick thanks to those helping me keep this show free for everyone and helping me keep my thermostat above 58 degrees in Vermont winters.

Speaker 1 So without further ado, I give you a quick word from our first ever sponsor. And if you've been here for a while, while, you'll understand why this is such a big deal for me.

Speaker 1 My main goal, always and forever, is to help you feel confident, empowered, and simply awesome managing your own money.

Speaker 1 I've spent years creating free financial education because I genuinely believe everyone should have access to it.

Speaker 1 And every single day, I still get about 20 emails from people saying, that's great, Tyler, but who would you trust if you weren't weren't a former portfolio manager or someone who wanted to manage their own money?

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Speaker 1 You all know I've been championing the flat fee model since day one, years before I linked up with Facet, because it's not twice as hard to manage $2 million as it is 1 million, and you shouldn't pay more simply because you have more.

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Speaker 1 It's also why I'm genuinely thrilled to have them as the first official sponsor of this show.

Speaker 1 So, if you're 90% of the way there, but want an expert hand with final allocation strategies, tax planning, or even unpacking your relationship with money and why it might be time for a change, visit facet.com/slash Tyler.

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This is not advice.

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Speaker 1 Section number three. Let's talk about tilting our portfolios and doing so with purpose.
AKA making a bet on something to succeed.

Speaker 1 Now that you've studied the benchmarks, the temptation creeps in, I could do better.

Speaker 1 This is literally what every active portfolio manager wakes up daily saying to themselves, I can do better than the market. Otherwise, you wouldn't be paying them.

Speaker 1 It's the same instinct that makes us believe we'd have solved Hamlet by simply telling the Danish prince to go to therapy. From the outside, everything looks easy to fix.

Speaker 1 In investing, this instinct takes the form of what are called tilts.

Speaker 1 You look at the market, you understand the benchmark, you understand the sector allocations that are currently there, you nod sagely, and you say to yourself, yes, the SP 500 is fine, but you know what?

Speaker 1 I'd prefer a little more technology, or perhaps a dash of small cap value.

Speaker 1 Before long, you've convinced yourself that you, unlike us mere mortals, have spotted the secret spice mix that will outperform the S ⁇ P. To be fair, tilting is not inherently foolish.

Speaker 1 Academics have spent decades proving that certain factors value, small cap, quality, or even momentum can deliver premiums over long periods.

Speaker 1 Eugene Fama and Kenneth French practically built careers and received a few Nobel Prizes around Tilt.

Speaker 1 The idea is simple. By leaning into one of these factors, you may earn a bit more return than the plain vanilla market.

Speaker 1 The problem, and this is a big problem, is that factors, just like Russian novels, demand way more patience than we tend to have.

Speaker 1 Value stocks underperform growth for much of the 2010s, leading many self-proclaimed value investors to abandon ship in despair just before value had a resurgence.

Speaker 1 Momentum works until it doesn't, like a character in a Dickens novel who seems destined for greatness but ends up in the debtor's prison.

Speaker 1 Tilting only pays if you can stick with it long enough to outlast the inevitable dry spells. So here's the golden rule.
Tilts are seasoning, not the meal.

Speaker 1 Adding a pinch of small cap value to your portfolio may make sense. Building an entire portfolio around it is like deciding Dostoevsky is light beach reading.

Speaker 1 A little deep, complex, and occasionally bleak literature can enrich your diet.

Speaker 1 A steady diet of nothing but the brothers Karamatsov will send most people running back to Instagram reels about dancing dogs within a week. Another common tilt is towards sectors.

Speaker 1 Tech, for instance, has rewarded believers handsomely over the past decade.

Speaker 1 I can't put up a single short form video about investing without some ding-dong commenting that if you just invested in NVIDIA you'd be all set and index funds are a waste of time.

Speaker 1 Well, stay tuned my fair weather friends, stay tuned, because this is a long game and the sooner you learn that, the better.

Speaker 1 And if you think for some reason you figured out NVIDIA, well, give it a couple years. Energy, in contrast, has had more mood swings than a Shakespearean king.

Speaker 1 You might tilt toward healthcare if you believe in demographic trends, or industrials if you believe in infrastructure spending.

Speaker 1 There's nothing wrong with this, but remember, every tilt is a bet, and odds are every bet you make has already been made by people who make a lot more money to do it than you do.

Speaker 1 And remember, tilting is not diversification, it's concentration disguised as conviction. A useful exercise here is to ask yourself, why am I doing this? Why am I tilting?

Speaker 1 Is it because I've read research supporting this particular factor? Or because I had a strong cup of coffee and Apple's chart looks pretty darn good this morning.

Speaker 1 Many investors surprise Tilt for the latter reason, which is precisely why most underperform their benchmarks.

Speaker 1 As Jason Zweig of the Wall Street Journal likes to say, the problem isn't that markets are inefficient, it's that investors are. And I love that line.
So what's the practical takeaway?

Speaker 1 If you're going to tilt, do it with purpose.

Speaker 1 Decide ahead of time how much you'll allocate, write it down, and commit to rebalancing back to that allocation no matter how bad it looks in the short term.

Speaker 1 Treat it like a marriage vow for richer or poorer through growth cycles and value winters until rebalancing do us part.

Speaker 1 Because tilting without discipline is just raw speculation. And speculation is fine.
It can even be fun. But don't confuse it with building a long-term portfolio.

Speaker 1 The market has a relentless way of humbling the confident, which is why most people, when they're honest with themselves, end up right back where they started, holding the index, seasoning it lightly, and realizing that bland food is sometimes the only thing that won't give you indigestion.

Speaker 1 Step four, let's build the actual fund.

Speaker 1 Okay.

Speaker 1 At this point in the show, if you're still with me, you know your sectors, you've peeked behind the curtain at the benchmarks, and you've promised not to let a Dostoevskyian tilt consume your entire retirement account.

Speaker 1 Well, now comes the fun part, actually building the thing.

Speaker 1 The simplest way to do this is through what are called sector ETFs, and the alphabet soup here is almost comical when it comes to their ticker symbols.

Speaker 1 XLK for technology, XLE for energy, XLF for financials, XLU for utility, you get the point.

Speaker 1 State Street, the same folks who brought us SPY, have neatly packaged each GIX sector into its own exchange-traded fund. Buy one and you own a slice of every major player in that industry.

Speaker 1 Buy all 11 in the right proportions and congratulations, you've just rebuilt the SP 500 from scratch.

Speaker 1 So, when I was a portfolio manager, if we didn't necessarily have a great idea for what to invest in in, let's say, utilities, we would buy XLU for a period of time until we decided what we actually wanted to tilt within that sector.

Speaker 1 So think of this like assembling your own fellowship of the ring.

Speaker 1 You've got Gandalf, technology, Aragorn, industrials, Legolas, consumer discretionary, Gimli, materials, Frodo, utilities, small but important, and even Boromir, energy.

Speaker 1 unpredictable and occasionally disastrous. But if you leave one out, the quest never would have worked the way that it was destined to.

Speaker 1 Yes, you can survive without real estate or communication services, but the more you exclude, the more you're making a bet rather than building a replica with a slight tilt.

Speaker 1 So once you've picked your cast, the next challenge is weighting. If you go equal weight, you're handing every character the same number of lines.
Apple and Duke Energy both get a soliloquy.

Speaker 1 If you go cap weighted, Apple and Microsoft dominate the dialogue while utilities mutter in the background. Neither approach is wrong.
They just tell different stories and make different bets.

Speaker 1 Then comes the pain in the butt. Rebalancing.
Rebalancing is the moment you admit, grudgingly, that your masterpiece has drifted.

Speaker 1 Maybe tech has surged and now makes up 35% of your fund when you only meant for it to mirror the S ⁇ P at 27%.

Speaker 1 Maybe energy has collapsed and become the orphaned character nobody remembers. Rebalancing is dragging everyone back to their assigned roles, even if it feels unnatural.

Speaker 1 Do this once or twice a year at most. More than that, and you're just tinkering.
Not only will you drive yourself mad, but you'll rack up transaction costs and worse, taxes.

Speaker 1 Remember, even free trades come with the hidden cost of bid-ask spreads. Every time you buy or sell, you're leaving a few pennies on the table.

Speaker 1 It doesn't sound like much, but as I mentioned a few weeks back, anyone who has seen Office Space knows pennies have a way of adding up to millions if you're not careful.

Speaker 1 This is where the elegance of the S ⁇ P 500 looms large again.

Speaker 1 While you're busy juggling ETFs and spreadsheets, the index committee is quietly doing the same thing for you, swapping in new companies, balancing sector weights, and managing the turnover in a way that creates extraordinary tax efficiency.

Speaker 1 You may think you're saving on fees by building your own fund, but if you're not careful, your rebalancing taxes will dwarf the 0.03% expense ratio you were trying to dodge in the first place.

Speaker 1 That's not to say it isn't worthwhile. Constructing your own fund is one of the best ways to understand how the market works, and I value nothing more highly than education through direct experience.

Speaker 1 It forces you to confront the trade-offs, the hidden costs, and your own behavioral traps.

Speaker 1 You learn why diversification matters, why sectors behave differently, and why patience beats precision every single time.

Speaker 1 Even if you end up throwing in the towel and just buying VOO, you'll do it with a newfound respect for what that boring index fund is actually accomplishing behind the scenes.

Speaker 1 So, by all means, build your own fellowship. Just remember that it's not about saving three basis points and fees.

Speaker 1 It's about seeing the machinery at work, the gears that grind quietly in the background while you sip your coffee and wonder whether Boromir is going to betray the portfolio yet again.

Speaker 1 Finally, step five, keeping costs down and ego in check. By now, you may have noticed a theme.
Yes, you can build your own fund. Yes, it's educational.

Speaker 1 And yes, it can even be fun in the way crossword puzzles are fun. Right up until you realize that most of the words are in Norwegian slang.
But here's the crucial part.

Speaker 1 The market has already given you a version of this puzzle. Completed neatly, laminated, and available for 0.03% per year.
It's called the S ⁇ P 500. Many people forget that the S ⁇ P is not static.

Speaker 1 It is not some dusty relic enshrined once in the 1950s and left untouched.

Speaker 1 It's a living, breathing index overseen by a committee that, again, swaps companies in and out with the ruthlessness of a casting director. Sears once had a starring role.

Speaker 1 Now it's been replaced by Amazon. Kodak was the darling.
Now it's a trivia question. In this sense, the SP, ironically, is one of the most active funds in existence.

Speaker 1 It just happens to be incredibly efficient at hiding it. That efficiency shows up most starkly in taxes.

Speaker 1 A A do-it-yourself portfolio, no matter how cleverly built, will usually throw off a lot of taxable events. Rebalancing, dividends, sector shifts, they all create little sparks of capital gains.

Speaker 1 The SP, by contrast, is almost absurdly tax-efficient. Through in-kind transactions and careful management, index funds often defer taxes for years, even decades.

Speaker 1 This is one of the reasons Jack Bogle's simple advice, don't just do something, stand there, resonates so powerfully. Sometimes inaction is not laziness, it's brilliant.
Then there's the cost of ego.

Speaker 1 Ego is the hidden fee most investors never calculate or try to quantify. It tells you you've spotted something others have missed.
No, you haven't.

Speaker 1 It whispers that you can do better than the boring index. No, you can't.

Speaker 1 And it reminds you that your cousin doubled his money on NVIDIA and that you too could be the clever one at the next holiday dinner.

Speaker 1 Again, give it a couple decades because I promise the NVIDIA premium has already been built in. And if people are buying that today in droves, joke will be on them in about 20 years.

Speaker 1 But ego rarely shows up on a prospectus. Its expense ratio is measured not in basis points, but in sleepless nights and underperformance.
That's not to say you should abandon curiosity.

Speaker 1 Building your own fund is one of the best ways to learn. It forces you to examine sectors or even learn what sectors are in the first place.

Speaker 1 It forces you to examine weighting and costs and look closely at what taxes are generated. It teaches you how professional fund managers think and why index funds are constructed the way they are.

Speaker 1 So, it demystifies the process. You no longer see the market as a black box, but as a system of moving parts that you could, if you wished, reassemble yourself.

Speaker 1 The lesson then, like most things, is balance. If you want to build your own portfolio, do it with humility and maybe just a smaller percentage of your overall investable assets.

Speaker 1 Acknowledge that you may not beat the SP. Acknowledge that your homemade stew, while being good, may lack the polish of a Michelin chef.

Speaker 1 But also acknowledge that in the act of cooking, you've learned more than the diner who simply ordered takeout or read about the latest culinary trends online.

Speaker 1 So, where does that leave us? Well, somewhere between Vanguard's polished efficiency and your own messy experimentations with sector ETFs and rebalancing spreadsheets.

Speaker 1 On the one hand, index funds like the SP 500 remain one of the greatest inventions in financial history.

Speaker 1 Low cost, tax-efficient, diversified, and are ruthlessly effective at doing what they set out to do. They are Tolstoy novels, sprawling, occasionally tedious, but undeniably great.
They will endure.

Speaker 1 On the other hand, building your own fund, even if only as a thought experiment, is illuminating. It's like trying to translate a few lines of Homer yourself.

Speaker 1 You'll quickly discover why professional translators exist and why you don't want to be one, but you'll also appreciate the epic in a new way.

Speaker 1 By constructing your own mini-index, by weighing sectors, by deciding when and how to rebalance, you'll see what's under the hood, and once you've seen it, you will never look at the market the same way again.

Speaker 1 And the truth is, very few people should run their own portfolios of sectors or factors. It's too time-consuming, too messy, and too prone to ego-driven errors.

Speaker 1 But that doesn't make the exercise pointless. Quite the opposite.
It will sharpen your understanding of why the boring choice of buying an index fund is, in fact, quite radical.

Speaker 1 It's radical because it admits your limitations.

Speaker 1 It's radical because it aligns your incentives with the markets, and it's radical because it leaves you with more time to do things that actually matter, like reading a few novels mentioned in this episode and understanding more of what I'm referencing, instead of parsing through quarterly earnings reports.

Speaker 1 So here's your takeaway for the week. You can build your own fund.
You can even run it for a while if you enjoy the process. But just don't kid yourself about the likely outcome.

Speaker 1 The S ⁇ P and its cousins are masterworks of design honed over decades. If you do go your own way, do it for the education, not the edge.

Speaker 1 Because in investing, as in literature, the greatest insights often come not from rewriting the classics, but from reading them more closely.

Speaker 1 And if this episode has helped you think differently about your portfolio, I'd love for you to leave a review on Apple Podcasts or share it with a friend. That's how this community continues to grow.

Speaker 1 One reader, one listener, one thoughtful investor at a time.

Speaker 1 As always, hope this gives you something to think about throughout the the week and that it got you one step closer to where you need to be.

Speaker 1 Thanks for tuning in to your money guide on the side. If you enjoyed today's episode, be sure to visit my website at tylergardner.com for even more helpful resources and insights.

Speaker 1 And if you are interested in receiving some quick and actionable guidance each week, don't forget to sign up for my weekly newsletter where each Sunday I share three actionable financial ideas to help you take control of your money and investments.

Speaker 1 You can find the sign-up link on my website, TylerGardner.com, or on any of my socials at Social CapOfficial.

Speaker 1 Until next time, I'm Tyler Gardner, your money guide on the side, and I truly hope this episode got you one step closer to where you need to be.