Index Funds: The Only Investment You Need for FIRE

The Boring Secret of Early Retirement

Browse any FIRE community and you'll notice something: the people who actually retired early aren't day traders or crypto enthusiasts. They're people who put money into index funds every month for 10-20 years and let compound growth do the rest.

That's it. No tricks, no timing, no stock picks. Just consistent investing in a single, boring, low-cost fund.

What Is an Index Fund?

An index fund is a mutual fund or ETF that owns every stock in a given index. A total U.S. stock market fund owns shares of roughly 4,000 American companies. An S&P 500 fund owns shares of the 500 largest.

Instead of trying to pick winners, you own everything. When the overall market goes up, your investment goes up. Historically, the U.S. stock market has returned about 10% per year before inflation (roughly 7% after).

Why Index Funds Beat Everything Else

1. Lower fees

The average actively managed mutual fund charges 0.50-1.00% per year in fees. A total stock market index fund charges 0.03-0.10%. That difference sounds small, but over 20 years on a $500,000 portfolio, a 0.75% fee difference costs you over $150,000 in lost growth.

2. Better performance

Over any 20-year period, approximately 90% of actively managed funds underperform their benchmark index. The fund managers who beat the market in one decade rarely repeat in the next. By owning the index, you're guaranteed to match the market — which beats 90% of professionals trying to beat it.

3. Simplicity

No research required. No watching CNBC. No quarterly rebalancing across 15 different holdings. One fund, one automatic contribution, done. The time you save can go toward increasing your income or enjoying your life.

4. Tax efficiency

Index funds generate fewer taxable events than actively managed funds because they trade less. In a taxable brokerage account, this means you keep more of your returns.

Which Index Funds to Buy

You really only need one or two funds. Here are the most popular options among early retirees:

Total U.S. Stock Market

Covers every publicly traded U.S. company. This is the single-fund solution most FIRE adherents use. Vanguard (VTI/VTSAX), Fidelity (FSKAX), and Schwab (SWTSX) all offer versions with expense ratios of 0.03-0.04%.

S&P 500

The 500 largest U.S. companies. Very similar performance to total market (since large companies dominate the index anyway). Vanguard (VOO/VFIAX), Fidelity (FXAIX), and Schwab (SWPPX) are the popular options.

Total International

Non-U.S. companies for global diversification. Many people add 20-40% international exposure. Vanguard (VXUS/VTIAX) is the standard choice.

The simplest portfolio

80% total U.S. stock market, 20% total international. That's it. Some people use a target-date fund that does this automatically, but those sometimes include bonds that aren't ideal during the accumulation phase.

How to Actually Do It

1. Open accounts. Start with your employer's 401(k) (contribute to the match), then a Roth IRA at Vanguard, Fidelity, or Schwab. If you max both, open a taxable brokerage at the same place.
2. Set up automatic contributions. Every payday, have money automatically invested. What you don't see, you don't spend.
3. Choose your fund. Pick one total market or S&P 500 index fund. The specific provider barely matters — the expense ratios are all negligible.
4. Never stop. Market crashes, recessions, scary headlines — keep investing through all of it. The people who panic-sell during downturns are the ones who fail to reach FI.

The Compound Growth That Makes FIRE Work

At 7% real returns, your money doubles approximately every 10 years:

• $100,000 at year 0
• $200,000 at year 10
• $400,000 at year 20
• $800,000 at year 30

This is why starting early matters so much. It's also why a high savings rate is crucial in the early years — you're buying the shares that will double and double again.

Common Questions

"Should I invest in individual stocks too?"

If you enjoy it, keep it to less than 10% of your portfolio. The other 90% should be in index funds. This way your financial independence doesn't depend on your stock-picking skills (which, statistically, aren't as good as you think).

"What about bonds?"

During the accumulation phase (when you're saving toward your Quit Number), most FIRE planners keep 0-20% in bonds. You have decades for stocks to recover from crashes. As you approach your Quit Date, gradually increase bonds to 20-30% for stability.

"Is now a good time to invest?"

Yes. It's always a good time to invest for the long term. Time in the market beats timing the market, and the data is overwhelming on this point.

Get Started

Calculate your Quit Number to know your target, then set up automatic index fund investments to get there. The strategy is simple. The discipline is the hard part. But the math is on your side.