Index funds, also known as market funds, are a specific type of mutual fund where the stock portfolio is designed to match the performance of a stock market or one of its stock sectors as measured by an index of selected stocks. They are sometimes referred to as index mutual funds because they are pretty much passively managed mutual funds based on market indexes. These are highly useful investment tools that can help you dodge all the financial hits that come with trying to fight the bull and bears of the market, and let you catch a ride with a market index you can trust. index funds are also available for bonds and not just stocks. These accounts are known as bond index funds.
Index funds allow the average investor to exceed his or her own limitations in many ways. These funds operate with large and diversified portfolios that can hardly be matched by investors on their own. Since the portfolio is so large and diversified and comprise such a large portion of the market, these types of funds are hard to outperform even in the short term, how about over a period of ten or twenty years.
Index funds also save investors from the common mistakes of stock market players who may not always know what they’re doing, thus losing their lunch money. It’s a very difficult process of learning stock charting and fundamental analysis on companies, and not too many people know how to do this effectively. Even the ones that do know how to do this still make mistakes constantly. It’s rare for any one investor in the long run to outperform a market index. Large market indexes like the Dow, The S&P 500 or the Vanguard total stock market index are almost never outperformed by investors. Some of the best index funds tend to be the more diversified portfolios. For instance a portfolio based on the S&P 500 which has historically outperformed actively managed accounts.
For the average stock trader, index funds are a very simple and probably the most secure way to invest in the stock market successfully. When participating in an index or market fund, you have all the pressures of the market taken off you, not having to track any of the stocks or make investment decisions that could cost you thousands of dollars.
You simply put your money in, and it’ll grow along with a whole stock market index as opposed to hoping that the little business you invested in stays afloat. Save yourself all the heartache and risk associated with the stock market and invest wisely through index funds. Even for the thrill seeking stock investor, it’s always a good idea to incorporate index funds as part of your overall investment plan.