Thursday, May 3, 2007

Easiest Way to Invest in the Market

My college Econ 201 professor gave us one piece of investing advice: invest in index funds that track the overall market.

Here I am a few years later repeating the same advice, only wishing I had been listening more closely.
Index funds are essentially mutual funds that attempt to track the performance of a specific index (although they don't have to). The most common index funds track stock market indices such as the S&P 500, Russell 2000, Wilshire 5000, Lehman Brothers Aggregate Bond, Nasdaq 100, DJIA, etc. The advantages of index funds is they have much lower expense ratios (around 0.3% vs 2-3% for mutual funds), more tax friendly and THEY BEAT 75% OF ACTIVELY MANAGED FUNDS over long periods of time.

Examples of Index Funds:
Vanguard S&P 500 6.51% return (Jan '07 - May '07)
Vanguard Total Stock Market 6.94% (Jan '07 - May '07)
iShares S&P 500 5.53% (Jan '07 - May '07)

No comments: