August 6, 2018
August 6, 2018
When most people think of investing, they imagine buying shares of Nike or Coca-Cola. They hear about the IPOs of new companies like Snapchat and wonder if they should invest.
But seasoned investors choose to rely on index funds for their retirement needs. Index funds track an index, which is a section of the stock market. Some choose the biggest companies in the country, while others go with international stocks.
Index funds are popular because they track a huge list of companies, often hundreds or more. Instead of putting all your eggs in one basket, investing in an index fund prepares you for the ups and downs of the market. Here’s how to get started.
Index funds are one of the most popular forms of investment vehicles because they’re adequately diversified. Jack Bogle, legendary investor and founder of Vanguard, believes that index funds are the key to a successful retirement. He’s made his living by producing stable funds with low fees that investors can rely on.
Index funds are passively managed, meaning that there’s no hedge fund trying to determine which companies will make you the most amount of money. According to investing site The Motley Fool, index funds beat out 80% of all actively-managed funds.
Look for low fees
Investing in the right fund can net you hundreds of thousands of dollars, but only if you choose the right ones. Not only should you look at what the fund has earned since its inception, but you should also check out how much it charges.
Each fund has its own fees and expense ratio, which is how much it charges out of how much you buy. Fees depend on the firm, the type of fund and how much you buy. Most of these are around 1% or less, which seems like a small price to pay for investing in your future.
But minimizing fees is a crucial aspect of investing. When a fund returns between 6-8% a year, paying 1% in fees means you’re cutting into your profits.
When looking for index funds, it’s important to keep an eye out for the following:
Interested in learning more? There are lots of free and paid resources for those who want to start investing in index funds. Here are some of the top resources for index funds:
Not feeling confident in your investing skills? You can also hire a financial planner to choose the funds for you or pick a robo advisor.