Investing in the stock market can be intimidating, but an index fund means it doesn’t have to be.
What is an index fund?
An index fund includes a group of stocks that track a specific market index. Mutual funds and exchange-traded funds (ETFs) are two examples. An investor who chooses these funds gains exposure to a diversified portfolio of stocks without having to pick individual stocks.
Here are three reasons to consider investing in index funds.
- One of the biggest advantages of index funds is their low cost. Because they track an index, these funds don’t require a team of professional stock pickers to manage them. This means that they have lower management fees than actively managed funds, which can eat into your returns over time.
- Another advantage of these types of funds is their simplicity. You don’t need to have a deep understanding of the stock market to invest in them. You simply choose the fund that tracks the index you want to invest in. Your investment will automatically be diversified across the stocks in that index.
- These investments are also a great way to invest for the long-term. Because they are diversified across many stocks, they are less risky than investing in individual stocks. The stock market generally results in higher returns than other types of investments, such as bonds or cash.
When investing in index funds, it’s important to keep in mind that they are not immune to market changes. In fact, they will rise and fall with the market index they track. But, a diversified portfolio that includes mutual funds or ETFs reduces the impact of market swings on your total wealth.
These funds can be for everyone
One common misconception about mutual fund and ETF investing is that they are only for passive investors. People assume these investors don’t want to put in the time and effort to research individual stocks.
It is true that these funds are a great option for passive investors. But, they can also be a great option for active investors who want to build a diversified portfolio of stocks.
Here at Good Life Asset Strategies, we prefer ETF’s to mutual funds because of their lower fees. We’re bargain shoppers. Feel free to reach out to us if you need help with an investment strategy that is right for your portfolio.