Investing Strategy: Choose Index Funds Carefully
Many investing professionals will tell you that a good strategy — especially for the beginning investor — is choosing index funds. This is because index funds offer consistent returns, and they are relatively safe (although, of course, all investment carries the risk of loss).
What are index funds?
Index funds are instruments that include stocks from an entire index. You can buy funds for the S&P 500 index, Nasdaq and Dow Jones All-Shares. There are index funds that allow you to invest in foreign companies, small businesses and other sectors. The idea is that you can gain when overall market performance heads higher. And, with the stock market in turmoil right now, it is possible to get shares in index funds for reasonably low prices, helping to boost your earnings later.
Things to watch carefully when choosing index funds
It’s not about just choosing a managed index fund and going with it, though. You need to choose carefully, or fees and other costs will eat into your earnings. The Motley Fool offers some insight into choosing index funds:
The various funds also differ in their minimum investment amounts, and those with higher minimums tend to have lower fees. Schwab offers one such fund with an expense ratio of 0.52% and a minimum of $100, and another fund with an expense ratio of 0.37%, along with a minimum of $50,000. Fidelity Spartan’s expense ratio is a mere 0.09%, but its minimum is $100,000. Look beyond the single expense-ratio number, too, as some funds charge sales loads and account maintenance fees, escalating the costs further.
You want to make sure that you truly are getting the best deal on your index funds, and you want to make sure that you are making solid decisions that are likely to benefit you in the long run.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
Tags: stock market, index funds, investing blog, choosing index funds,
investing strategy, investments, foreign funds
