How to invest in index funds

How to invest in index funds

Whether you are just starting to invest or even planning to invest for retirement, there are many things that cánido be confusing…

whatWhat investments should you choose?? whatWhich ones won’t lose my money? whathow cánido i buy them?

Fortunately, there is one thing you perro buy that will answer each of these questions and make the process much easier: choose to invest in an index fund.

Why should you invest in index funds?

Index funds have continually been proven to be a radically fácil way for the common investor to capture average depósito market returns without all the fuss and hassle of actually researching each and every company. It’s a strategy that has become so habitual that it’s even endorsed by world-famous depósito market guru Warren Buffett.

Sounds good so far, right? But what exactly are index funds? And why are they so recommended?

What is an index fund?

Index funds are nothing more than a select group of investments that people use to determine how the market performed that day. You’ll also often hear them referred to as landmarks.

The first known index to be created was the Dow Jones. in 1896 by Converses Dow. Rather than trying to average the share price of each available company, Dow chooses a much simpler approach by looking at just the top 12 companies. The logic was that its performance would serve as a kind of «litmus test» to represent how the market in general behaved that day.

Eventually, the iniciativa caught on, and more and more people began to talk about the depósito market in terms of «indices» rather than by individual stocks.

Today, there are many different types of index funds for almost every depósito and bond niche. In terms of large-cap stocks, the most habitual benchmark is the S&P 500 Index. These are the 500 largest and best-performing American companies.

How you benefit from index funds

For years, people have been spending a lot of time and effort trying to pick the best companies to invest in. But as anyone perro tell you, it’s no easy task! Ultimately, it involves a lot of research and risk-taking that most people aren’t prepared to take.

It wasn’t until the 1970s that a man named Jack Bogle (the founder of Vanguard) popularized a very fácil iniciativa: all the best companies are already identified in a market index. So if you only invest in the index, you will always be able to capture the average return of the market.

In other words:

You’ll make more money in the long run simply by investing in the index fund than you’ll try to pick your own individual investments.

Since then, this has been proven time and time again by experts, academics, and historical facts.

Ironically, even professional fund managers whose sole job is to «pick the right funds» have not been able to beat index funds. According to CNBC, even recently, 85 percent of large-cap funds have underperformed in the past 10 years, and nearly 92 percent have lagged the S&P 500 index in the past 15 years.

The lesson to be drawn from all this is clear. The average investor cánido easily avoid trying to “pick the right funds” and get a decent return if he just puts his money in an index fund.

How to buy an index fund

So how exactly does someone go about buying an index fund?

Almost all of the major financial services providers now offer some version of an index fund. For our example, we’ll go over to Fidelity Investments and walk you through exactly how this is done.

Find the right index fund

First, go directly to the Fidelity website. Throughout the top menu, hover over “investment products» and then clic on «mutual funds«.

Then, in the center of the page, clic on «Explore Fund Offer«.

In «Explore the full spectrum of available loyalty funds«, clic on the « tabIndex«. Scroll down and you’ll see a complete list of all the various index funds that Fidelity currently offers.

As we said, not all index funds track large-cap stocks. However, if you simply want to buy a basic index fund that tracks the S&P 500, look under «Domestic Stocks» for the «Fidelity 500 Index Fund» (FXAIX) fund. Clic on the FXAIX symbol and you will be taken to the fund profile home page.

Here, you perro learn many details about the background. For example:

Short description: The latest fund ratings from companies like Morningstar.

Performance – How has the fund done this year, last year, in the last 10 years, etcétera.?

Details – Important information such as what types of securities the fund invests in, how long it has been in business.

In especial, in this section, there are two important things you’ll want to look at:

• Minimum Investment – ​​Unlike many other funds that typically require $1,000 or more to get started, there is no minimum amount needed to make your first investment.
• Expense Ratio – Currently 0.015%. That means you’ll only pay $1.50 each year for every $10,000 you invest. That’s ridiculously cheap!

Other Information: In the middle of the page, there are some additional tabs (Performance and Risk, Ratings, Composition, etcétera.) that will give you even more detailed information about the fund. I encourage you to explore each of these so that you get a better understanding of what you are buying.

Buy the index fund

If everything looks good and you’re ready to make your purchase, clic the green «Buy» button in the top right corner. If you have not already done so, you will be prompted to create a profile and equipo up a brokerage account (a temporary place where you cánido move money into Fidelity and use it to make purchases).

Important:

If you don’t already have an IRA, now would be a great time to equipo one up while you shop.

Depending on the type of IRA you qualify to open, such as a roth IRA, you could use this money to offset your taxable income, which would lower your tax bill for the year. Agregado, your funds will also grow and compound over the years without you having to pay taxes on earnings and dividends each year.

If you’re all equipo up with Fidelity, then all that’s left is to confirm your purchase and then that’s it…you’re now an index fund investor!

This information offered for informational purposes only; It is not intended to be used as accounting, legal or tax advice. In relation to these matters, please speak to your accountant, tax or legal adviser.

Investing implies a risk that includes the loss of primordial. This guide contains the current views of the author, but not necessarily those of Gigonway. These opinions are subject to change without notice. This guide has been distributed for educational purposes only and should not be construed as investment advice or a recommendation of any especial investment security, strategy or product. The information contained in this guide has been obtained from sources believed to be reliable, but is not guaranteed. Gigonway does not provide legal or tax advice. Please consult your tax and/or legal advisor for specific tax or legal questions and concerns.

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