Since the 1970s mutual funds have been getting more and more popular, and investors like them so much that they have put several billions of dollars into this kind of investment.
A Popular Option As A Mutual Fund – Index Funds
There are several different kinds of mutual funds, but a good one to consider is index funds. Index funds are a very common investment because of their usefulness.
Index Funds for Low Fees
Index mutual funds are mutual funds that invest in a cross section of stocks and securities chosen in such a way as to attempt to match one of the popular stock indexes’ returns. There are mutual funds that attempt to match the Standard and Poors 500, for example, as well as other funds that try to match the return (up and down) of the Dow Jones Industrial Average, just to give a couple examples of index funds.
The advantages of index funds advantages
Two of the many advantages of index funds are featured below. For example, index funds typically have low management fees because they don’t require much work for a manager, so you end up paying less.
Active management is when the fund has a fund manager who chooses what to buy and sell to maximize the return of the fund. Active management usually entails frequent buying and selling, incurring costs associated with such transactions.
And, active management requires that a fund manager be hired who is an expert in stock picking and trading. Such a manager, of course, requires a salary commensurate with the manager’s ability. Index funds, by contrast, require no active management. The stocks are chosen, often by a computer program, to match the return of the index with the least possible trading and virtually no discretion necessary on the part of the fund’s management.
The second good reason for selecting index funds is similar to the first. Choosing an index fund means your returns will track a market index, which means that your fund will be generating a higher return than the over 50% of funds that do worse than those indexes.
That way, you pay the company less in fees, and your investment normally does about as well as the stock market index it is tied to. When looking for your next investment opportunity, you should consider index mutual funds.