LearnVester Question: I Am Ready to Start Investing, BUT…

Allison Kade
Posted

Consider something called an index fund, which gives you exposure to tons of different companies at the same time, with ultra low fees.

Here are the five things you need to know:

1. They’re A Type Of Mutual Fund.

Mutual funds allow you to buy stake in a bunch of different stocks, which is a good thing because it ups your diversification and lowers your risk.

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2. Index Funds Aim To Match The Market.

When most people talk about mutual funds, they’re referring to actively-managed funds. (This means that a person actually manages it.) The goal of an actively-managed fund is to beat the market, so it tries to outdo the performance of a particular index, like the S&P 500. Index funds, however, are passively-managed. (Meaning that there’s no person at the helm, so you don’t have to pay the same fees.) So, they’re not trying to beat an index like the S&P 500, but rather to match it.

3. That’s Why They Charge Much Lower Fees.

In an actively-managed fund, you’re paying someone to try to beat the market for you. But, the truth is that the market is very difficult to beat. Even if an active fund does beat it for you, a lot of your earnings will get lost in the fees. Index funds save the effort and keep expenses low.

4. Invest In An Index Fund Through Your Regular Brokerage.

If you’re not sure which index fund to invest in, search for an index fund by using the research tools on your brokerage’s website or the Bloomberg website. If you use an online brokerage, just type in the symbol of the fund you want and purchase it like any other mutual fund. Meanwhile, if you don’t have an investment account yet, read our “I Want An Investment Account” checklist.

5. There’s Always An Element Of Risk.

There’s always risk involved when you’re investing in the markets. If the main index decreases, your shares will go down. If you’re looking for ultra low-risk investments, consider high-yield savings accounts or certificates of deposit (CDs).

  • http://www.smartstops.net Shelley

    Please do not make the mistake that most investors do by not defining your exit protection strategy from the start for your investments. That is the MOST critical part of the investing equation but the one most overlooked. It has been shown in studies that one can have a terrible pick rate (of stocks/funds etc.) but so long as they have kept losses to a minimum but let their profits grow through a smart protection strategy, they can win at the investing challenge.