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

Your Money Guide on the Side

Tyler Gardner

Business, Education, Entrepreneurship, Investing, How To

4.9 • 2.4K Ratings

🗓️ 27 October 2025

⏱️ 38 minutes

🔗️ Recording | iTunes | RSS

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Summary

What if you could skip the index fund and build your own? In theory, you can. In practice…well, it’s a bit like building your own refrigerator. You’ll learn a lot, and maybe even get a working model, but you’ll also discover why the factory-made version is so efficient in the first place. In this episode, we dive into the peculiar urge to “DIY” the market, and why the exercise can be incredibly educational—even if you never actually follow through. Along the way, you’ll learn: The 11 Sectors of the Market: From flashy Tech to steady Utilities, every portfolio starts with understanding the cast of characters. How Benchmarks Really Work: Why the S&P 500 is more active (and more tax-efficient) than most people realize. The Temptation of Tilts: When to add seasoning like value or small-cap, and when ego is just disguising speculation. Building Your Own Fund: How to use sector ETFs to replicate the market—and why rebalancing can become a full-time job. Keeping Costs and Ego Down: The S&P’s hidden advantages in cost and tax efficiency, and why humility may be the cheapest asset in your portfolio. The takeaway? You can build your own index fund. You might even enjoy the process. But the real lesson is what it reveals: index funds are masterpieces of design, combining diversification, tax efficiency, and ruthless discipline—all while letting you spend your time on things that matter more than spreadsheets. And if you are interested in learning more about those who support this content and make the show possible, visit facet.com/tyler today! And see why they're the only partner I've brought to you thus far as a resource. 👉 If you found this episode useful (or at least more entertaining than quarterly earnings reports), please leave a review on Apple Podcasts or share it with a friend. It’s the best way to help the show grow—and keeps me from muttering about sector weights to myself in the Vermont woods.

Transcript

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0:00.0	Acknowledge that you may not beat the S&P.
0:03.2	Acknowledge that your homemade stew, well, being good, may lack the polish of a Michelin chef.
0:09.3	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.
0:19.3	The S&P and its cousins are masterworks of design honed over decades.
0:25.6	If you do go your own way, do it for the education, not the edge.
0:30.6	Hello, friends, this is Tyler Gardner, welcoming you to another episode of your Money Guide
0:35.6	on the Side, where it is my job to simplify
0:38.7	what seems complex, add nuance to what seems simple, and learn from and alongside some of the
0:44.6	brightest minds in money, finance, and investing. So let's get started and get you one step
0:50.2	closer to where you need to be. I want to start by having you imagine walking into a hardware store and announcing with
0:59.3	great confidence, you know what, Home Depot?
1:02.7	I'd like to build my own refrigerator, please.
1:05.7	The clerk would probably stare at you for a moment, hand you a wrench, and wish you the best of luck.
1:12.4	That's more or less what it's like when an investor decides to build their own version of the
1:18.1	SMP 500, or any fund for that matter.
1:21.9	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.
1:34.6	So in this episode, we're going to talk about the peculiar urge that many people have to build their own fund.
1:42.1	I've had this urge. I've acted upon this urge. And I've spent
1:46.0	years working with my own funds. And honestly, I've had a lot of fun along the way and learned a
1:51.7	ton about what works, what doesn't work, and what bluntly is incredibly redundant as there are
1:58.9	already passively managed funds doing way more than I could ever or would want to ever do on my own.
2:06.6	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
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