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Use
index funds as a less costly way to invest in
the stock market. Mutual fund companies
such as Vanguard, Barclays, and others offer low
cost index funds.
THE
BENEFITS OF INDEX FUNDS
The toughest
part of investing in stocks for most people is
stock selection. There are thousands of listed
companies in the marketplace that you may invest
in by doing your own work and research.
An easier
way to invest in a diversified portfolio of
stocks is to invest in index funds. Here
is some information on the benefits of investing
in index funds.
INVESTING
IN INDEX FUNDS
What is an index fund?
An index fund is a mutual fund that
attempts to match the performance of a major market index. For example, the
Dow Jones Industrial Average. The way it does this is by investing in the
exact same companies as the average and at the same proportions. It mirrors
the index exactly. This way if the average goes down, the fund goes down. If
the index rallies, so does the fund. So what are the benefits to index
funds?
Guarantee average returns
Most investors aim for above average returns in investing but most fail. Most
even fail to achieve average returns. You want to achieve the market average at
least. You can guarantee the market average by investing in index funds. The
index fund is the average so as soon as you make an investment you know you have
achieved the average.
Outperform over 80% of all actively managed
funds
Average still doesn’t sound good enough. Well if you placed your money into an
actively managed fund then there was an 80% chance you would end up with less
money. Actively managed funds employ analysts and investment experts to try and
achieve huge returns. In fact they can’t beat an index fund most of the time.
Invest in an index fund and you know that there is a 4 in 5 chance that you will
do better than investing elsewhere.
Low cost
One of the reasons that actively managed funds underperform index funds is that
they are expensive to run. They have to employ fund managers, analysts and
traders and whole host of other experts to give you perceived value. Index funds
just follow the average so they spend very little money. This is reflected in
the return you receive. You lose little in fees.
Low maintenance
When you are saving and investing for retirement you want to ‘set and forget’
your investment as much as possible. You want to be able to invest your money,
achieve the market average and in 20 to 30 years you have a large nest egg for
retirement. Index funds allow you to do that. Pick an index fund for so don’t
waste valuable time and money.
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Use
index funds as a less costly way to invest in
the stock market. Mutual fund companies
such as Vanguard, Barclays, and others offer low
cost index funds.
To
teach and learn more money skills, personal finance, and money
management, please go to the