Investing in index funds

Investors are always looking for different ways to make money by choosing the right investments. Stocks are always at the top of everyone's list and stock selection is normally the hardest part about investing in stock. You can spend hours doing research on different stocks and companies to figure out which ones are going to be profitable. If you don't have the time or the will-power to do all this research, you should turn to index funds. Investing in index funds are a great way to build a diversified portfolio.

How does an index fund work?
An index fund works by matching the performance of a major market index. It is simply a mutual fund that stays in competition with other funds. Index funds will invest in the same companies as the average from the market index like the Dow Jones Industrial Average. So when the market funds drop, your index fund will drop. It is an exact copy of the major funds and they provide a great way to get some guaranteed returns.

Why choose index funds?
Index funds are completely different from other investment strategies. Most people that don't know too much about them are usually pretty skeptical. This is completely normal considering you don't have control over them and they basically mirror whatever the market index is doing. So why choose index funds? Here are some reasons:

• Guaranteed returns


• Lower cost


• Low maintenance

If you don't know much about the investing world or you simply to do not have a lot of time to invest in your portfolio, index funds may be your answer. Index funds are low maintenance. You basically put the money in there and let it do its own thing. In order for the index fund to actually make some good money for your retirement someday, you need to be sure to select a good one.

Another reason why you may consider an index fund is because of its low cost. Managed funds are expensive to keep track of, especially if you hire another person to do it for you. An index fund is pretty cheap to run and you don't need to worry about hiring a bunch of people to give you updates and predictions. Most index funds come with fund managers and traders that will tell you what the perceived value is for that particular fund. Since the index fund follows the market index, there isn't a lot of micro-managing of your portfolio. It's similar to using cruise control in your car; you simply set it and forget it. The other low cost benefit you have is that you don't need to pay a bunch of fees like you do with traditional stock market investing.

Lastly, index funds guarantee returns. Since most people are using the money to build-up a nest egg for their retirement, index funds make complete sense. Instead of worrying about the daily numbers, you can achieve the market average and you don't need to worry about losses or mediocre returns. The index fund is the average, so it's easy to calculate what you have made. Recent reports have found that index funds actually outperform most of the actively managed funds. It is pretty hard to beat the profits on an index fund since they are the average. There is no predicting, no selling, no trading, no hectic and frantic brokers, you are basically just coasting along until you are ready to pull out your money. When you invest in an index fund, you actually have a better chance to make money here than you do when you are investing in managed funds where you spend more time micro-managing the details.