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Regular readers of this website will remember this post that I wrote, Investments: Why Saving is not Enough . You cannot simply save your way to financial freedom, if you are to be successful and achieve your financial goals, you will need to grow your finances exponentially. In today’s post I want to return to investment as a topic and discuss one particular type of investment namely Index Fund Investing.
What is an Index Fund?
An index fund is a type of mutual fund or exchange-traded fund (ETF) with a portfolio constructed to match or track the components of a financial market index, such as the Standard & Poor’s 500 Index (S&P 500) in the United States or the FTSE 100 in the United Kingdom.
What are the Benefits of Index Fund Investing?
Lower Risk
If you were to invest directly in a company via stocks or shares your level of risk is quite high. The company’s fortunes could change for the worse and your investment could literally be worth nothing through no fault of your own. An index fund lowers your risk considerably by investing your money in the top performing companies in a particular financial market. If one company underperforms, they will drop out of the index and be replaced by another. Your investment is likely to benefit from the good performance of the best companies within the index.
Low Operating Costs
Compared to other investment vehicles, Index Funds have relatively low operating costs that manifest themselves in terms of fees for individual investors.
Investment Performance
The primary investment objective for an index fund is to match the risk and return of the market. When investing for the long term, the market will usually outperform any one single investment. This is why index fund investing is an excellent approach for retirement accounts.
How to Get Started with Index Funds
You can invest in an Index Fund via a brokerage account or directly via a mutual fund company. If you are relatively new to investing, a visit to an independent financial adviser would be a sensible first step.
To review some of the best performing index funds click here and remember that past performance is no guarantee of future performance.
Next Steps
Are you interested in index fund investing ? Have you invested in one already? Let me know in the comments section below. Also, get in touch if you would like my help. My email address is mike@learnmoney.io
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Investments: Why Saving is Not Enough
My aim with each blog post is to help you move to a better financial future. I believe that there is not enough financial education in the national curriculum and I intend to share anything helpful that I have learned along the way. I am by no means a financial expert. None of the information on this website constitutes financial advice and is provided as general information only. This is my personal finance blog; my marketing blog is over here and I have been blogging there since 2010. I hope you have found this information useful. Thank you for reading.
Best regards,
Mike
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