Mutual Funds - Index Funds
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 Category of 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
One type of mutual funds is index mutual funds, which are used as a way to invest in a cross section of stocks and securities. This is in attempt to meet the most favorable stock indexes' returns. As a couple examples, there are mutual funds that look to match the gains and losses of the Standard and Poors 500 as well as other funds that look to do the same with the Dow Jones Industrial Average.
Some of the index funds advantages
There are several advantages to owning index funds, and I'll elaborate about two of them here. The first advantage of index funds is that the average expenses are comparatively lower since they do not need active management.
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.
So you get the advantage of lower overall fees charged by the mutual fund investment company, and the advantage of having your investment perform just about as well as the market index which it tracks. Next time you are shopping for an investment vehicle, give index mutual funds some thought.
A Popular Category of 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
One type of mutual funds is index mutual funds, which are used as a way to invest in a cross section of stocks and securities. This is in attempt to meet the most favorable stock indexes' returns. As a couple examples, there are mutual funds that look to match the gains and losses of the Standard and Poors 500 as well as other funds that look to do the same with the Dow Jones Industrial Average.
Some of the index funds advantages
There are several advantages to owning index funds, and I'll elaborate about two of them here. The first advantage of index funds is that the average expenses are comparatively lower since they do not need active management.
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.
So you get the advantage of lower overall fees charged by the mutual fund investment company, and the advantage of having your investment perform just about as well as the market index which it tracks. Next time you are shopping for an investment vehicle, give index mutual funds some thought.
About the Author:
Learn all about indexed mutual funds and other investment and personal finance issues at Mutual Fund Trader, a leading website covering the mutual fund industry.
posted by gaz at
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