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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

As worries about a volatile stock market (which is up right now as oil prices drop) and a US dollar that is weakening overall (although rallying today) abound, some folks are thinking about diversifying into international funds.

Advantages to international funds

One of the main advantages to adding international funds to your portfolio is the fact that it increases your diversification. Diversity provides protection when properly applied. Additionally, Trees Full of Money provides two more reasons to consider international funds:

1. Protection as the US dollar declines in forex trading overall. International funds allow you to invest in instruments denominated in currencies other than the US dollar. As the US dollar loses its prominence in the world, it is likely to decline overall. This means that international assets will appreciate against the dollar, giving your portfolio an advantage. Of course, the flip side is that if the dollar appreciates, you could find your international funds losig value.
2. Emerging market access. In the US, dramatic economic growth is rare. This is because the United States is already pretty well established as an economic power. Other economies, though, in emerging markets like India and China, are growing rapidly and are likely to continue growing in the near future. International funds that invest in companies and assets in emerging market could see very solid — maybe even explosive — growth. Of course, with this prospect also comes the very real risk of larger losses.

International funds could make a very good addition to a balanced investment portfolio, if properly used. Just be aware that there are risks involved, and make sure that you have the risk tolerance for it.

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.

Tags: investing idea, international funds, investing blog, investment portfolio,
diversification, investments, forex

One of the fears I hear regularly is that with stock market volatility — and other upheavals in the investing world — that investing is “too risky” or “not smart” right now.

It is true that some types of investing may not be the best idea right now, especially for beginners. But investing is still a smart choice. It is important to use investments to allow the law of compounding interest to work in your favor. You just have to be careful about what you invest in.

Stocks

If you choose carefully, picking fundamentally sound value stocks, you can actually find some great bargains right now. Buying more while the market is mostly down on most days can mean great gains down the road. Index funds are another way to get into stock investing without exposing yourself to excessive risk (although that risk will always be there). Mutual funds can also offer stock investing diversity with lower risk than individual equities (but watch out for the associated fees).

Bonds

These are considered “safe” investments — when they are government bonds. Federal bonds regularly grow, albeit at a rather stodgy rate. However, they can make good investments in terms of safety, and they generally do better as the economy falters. For better returns (but greater risk) corporate bonds and municipal bonds can be invested in.

Currencies, Commodities and Futures

Currencies are rather risky. When you get involved with FX trading, you should have a high risk tolerance. It is possible to make quite a lot of money on the currency market, but it requires some practice and the ability to take chances with your cash.

Commodities and futures are also quite risky. These require knowledge of markets and savvy decision making. Any number of factors can affect how commodities and futures move, and it is important to know what you are doing and to have a high risk tolerance when you engage in commodities and futures trading.

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.

Tags: stock market, currency market, investing blog, index funds,
futures trading, investments, FX trading