A manager of an index fund invests in companies whose stocks are listed in an index such as the Standard & Poors 500. The fund tracks the performance of the index. The S&P has been the index with the best performance in the past decade. If you want even more diversification, try a fund that invests, for example, in the Wilshire 5000, which tracks all of the stocks listed in the American Stock Exchange, the New York Stock Exchange, and Nasdaq.
Rather than trying to predict the direction of the market, the index funds are designed to match the performance of the index. These funds are considered to be unmanaged because they invest and hold the same stocks as in the index. Unfortunately, the fact that index funds match the performance of the index is the worst part, too, because in a bear market (when stock prices drop significantly), index funds have no place else to turn for investments but to the index. Remember, however, that index funds can offer the investor long-term, steady growth.
You can pick a small-company mutual fund, a medium-company mutual fund, a bond mutual fund, and an international mutual fund as you continue building your portfolio, but it’s a good idea to start with a fund that invests in large company stocks. Because, since the late 1920s, these types of stock have historical average annual returns of more than 11%, this type of fund can anchor the rest of your portfolio.
Rather than trying to predict the direction of the market, the index funds are designed to match the performance of the index. These funds are considered to be unmanaged because they invest and hold the same stocks as in the index. Unfortunately, the fact that index funds match the performance of the index is the worst part, too, because in a bear market (when stock prices drop significantly), index funds have no place else to turn for investments but to the index. Remember, however, that index funds can offer the investor long-term, steady growth.
You can pick a small-company mutual fund, a medium-company mutual fund, a bond mutual fund, and an international mutual fund as you continue building your portfolio, but it’s a good idea to start with a fund that invests in large company stocks. Because, since the late 1920s, these types of stock have historical average annual returns of more than 11%, this type of fund can anchor the rest of your portfolio.
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