index funds are a
smart bet
Mutual funds have become one
of the most popular investment choices that are
available today. These financial vehicles allow an individual to place money
into the stock market while at the same time reducing
the amount of risk that will be incurred.
Additionally, these funds can be utilized for a variety of
purposes. Some people choose this option as a means of saving money
for a long range goal, while other people
are preparing for retirement. In many cases the only
drawback to mutual funds is trying to decide which one
to use. For a lot of people the solution to this
dilemma can be found in the form of an index
fund. An index fund is tied to the performance
of a stock market index, such as the S&P 500. These
indexes attempt to gauge the performance of the market by
tracking a certain number and variety of stocks.
The results are generally used as a benchmark for the
industry. It is the goal of most mutual funds to
beat the major index performances. However, this is
what sets the index funds apart. Their primary goal is to
MATCH the level of the major indexes. On the surface,
attempting to beat an index may sound like
the preferable option; however, this is easier said than done.
In reality, the vast majority of mutual funds in existence today fall
short of the index levels. With this in
mind it makes much more sense to adopt the
philosophy of, "if you can't beat them, join them". This
is accomplished by choosing a particular index (i.e. the S&P 500)
and creating a fund that mirrors the same stocks and
percentages.
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Let's take a
look at the two main advantages of choosing an index
fund:
-
Better results. Index funds bring a
higher rate of returns than 80% of actively managed mutual
funds.
-
Lower fees. The fact that the fund's portfolio
is tied to an index creates less work in terms of
maintenance. This is passed along in the form of lower
fees.
The bottom line is that individuals who
are looking for a long term mutual fund
option should seriously consider choosing an index fund. They
offer the same basic advantages that have made traditional mutual
funds so popular, plus they perform better (on average) and cost
less. This produces a winning combination that is hard to
beat. | 
