Mutual Funds - Index Funds for Low Expenses and High Returns
Posted on May 8, 2008
Filed Under Finances |
Mutual funds have been around for a long time - since the early 1970’s they have increased in popularity with each year - billions and billions of dollars are now invested in mutual funds, making them one the most popular investment vehicles.
A Popular Option As A Mutual Fund - Index Funds
Although mutual funds can be sorted into a number of different categories, one of the most useful types of mutual funds is the index fund. This type of fund is very popular and widely held and for good reason.
Index funds - Mutual Funds that Track Stock Indexes
Index mutual funds are a kind of mutual funds that select a wide variety of stocks and securities with the goal of matching the returns of a well-known stock market index. Some mutual funds are intended to match the Standard and Poors 500, while others are to match the return, which is the up and down of the Dow Jones Industrial Average.
Some of the index funds advantages
Index funds have several advantages, two of which I’ll discuss here. One is that the average expenses of index funds tend to be lower because index funds do not require active management.
The term “active management” means that a person who is in charge of buying and selling stock for a fund is actively involved. A fund is frequently bought and sold under the direction of the manager, which generates costs to go 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.
Another advantage of index funds is related to previous one. If you choose an index fund, you can know that your fund will not be among majority of managed funds that regularly under perform the stock market as a whole.
You can enjoy the benefit of lower fees to be paid to the mutual fund investment company and your investment performing along with the market index it tracks. If you are in the market for a new way to invest, consider index mutual funds.
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