Close up of a graph showing the growth of an index fund to represent why index funds are a great investment.

Why Index Funds are a Great Idea

Why are index funds such a great idea for almost any type of investor? A common reason why investors choose such a fund is because it provides investment diversity. When putting money into the stock market, it is never a good idea to put all of your money in one place.

Index Funds Invest in All Companies in a Particular Fund

The reason why index funds give investors such diversity is because it invests in the entire index as opposed to one specific company or sector. The goal of a typical index fund is to track companies that are listed on the S$P 500 or any other larger index in the United States or abroad. With one index fund, an investor can put his or her money into health stocks, tech stock, and education stocks without having to manage multiple investments.

Low Fees Make the Index Fund a Great Buy

Index funds have some of the lowest fees out of any mutual fund. This is because the only decision that a fund manager needs to make is whether to buy or sell shares in the fund. As shares are purchased in almost all companies in the index, you don’t need a complicated strategy to make the fund grow.

Inexperienced Investors Can Easily Enter the Market

For a first-time investor, it can be confusing to figure out how much money to invest and where to invest it. With an index fund, however, you simply put in as much money as you are comfortable risking and track the index on a regular basis. There is no need to obsessively watch the news or track the market looking for the next great opportunity. Generally, the S$P 500 will grow at a rate of 6-10 percent per year over a 10 year or longer period regardless of how good or bad the economy is in the short-term.

Index funds can be a great investment for anyone wanting to manage his/her investment easily. Index funds provide diversification within one investment. This makes it easy to track your portfolio and gain a solid understanding of where it is going. Whether you are an aggressive investor or someone who wants to play it safe, there is an index fund available suitable for your needs.

Last Updated: August 10, 2015