Index Mutual Funds

Index funds represent the counterparts of the actively managed mutual funds; they attempt to mimic the behavior of a chosen index. Therefore, if you have had enough of investing, index funds are the place where you can put your money and take advantage of not only diversification, but also of compounding interests. Additionally, index funds are characterized by very low expense ratios since they are not actively managed and eliminate the operations costs incurred by their actively managed counterparts.

A recent study has proven that only 0.001% of the actively managed mutual funds succeed in beating up the S&P 500 in a continuous manner. Judging by this grave statistics and resting on the examples from the past, the possibility of a future consistent defeat of the S&P 500 by an actively managed mutual fund can be decreased to a minimum. Only in case you are confident that you will be able to choose one of those ten of ten thousand mutual funds, then it is your turn. But we will not bet on this. Therefore, it is recommended to invest in the market itself by allocating every free dollar to an index fund. Only then you can receive a guarantee that in the long term you will outperform most of the actively managed mutual funds.

In order to take advantage of low turnover rates and diversification at their maximum rate, invest in index funds that tend to mimic the behavior of the S&P 500. Other beneficial alternatives are index funds that go after the Dow Jones Industrial Average. The leaders in the index fund field are Vanguard and Fidelity, which offer one of the lowest cost index funds.

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For the knowledge part we always recommend subscribing to the The Wall Street Journal (and save over 75%).

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