Investing in index funds is a great way to invest in the stock market. An Index fund is a mutual fund that invests in specific stocks which are part of a index of a financial market. As a way of example, an index fund that mirrors the S&P 500 would invest in companies that are a part of the S&P 500 and their holdings would be the same percentage as that comprised in the index.
But index funds do not actually buy all of the stocks making up a particular index. Instead, they buy stocks that closely track the movement of the particular index. These index funds can either be Exchange Traded Funds (ETFs) or index mutual funds.
So what makes investing in index funds so great?
1. low fees:
Because these funds just invest in securities that mirror an index, index fund managers do not have to do a lot of research. Because the mutual fund managers don’t have a lot to manage, they can charge much lower fees that managed mutual funds.
2. set and forget:
By investing in index funds you don’t have to pay a lot of attention to your investments. You can feel pretty confident that you are diversifies and you know that your investments will closely mirror the movement of the market as a whole. I like to call this the set and forget type of investing.
Mutual fund investing is a great way to invest your money. Investing in Index funds is one of the best ways to invest in mutual funds.