Want to feel confident in your ability to navigate retirement and prepared to begin your journey?
Click to enroll in our free Retirement Basecamp™ online course today.

Basics of Index Funds

Index funds have become an increasingly popular investment. But are they right for you?

We all remember the story of the tortoise and the hare. It was in this tale that we learned a valuable lesson: slow and steady wins the race. The tortoise was not a glamorous creature. He may have lacked pizzazz, but in the end, he won.

In a way, index funds are the modern-day tortoise in the race for a solid investment plan. Nothing flashy, just steadily keeping pace with a particular index, and if, by chance, that index does well, then the fund excels also.

Index funds, which are a type of mutual fund, are a pretty simple concept in the world of investments.  In an index fund, stocks are grouped together from companies included within an index, for instance the S&P 500 or the Dow Jones Industrial Average. The percentage of stock is kept the same as the indexes themselves in an attempt to mirror the index.

About the Dow Jones Industrial Average

The Dow Jones Industrial Average (DJIA) is a price-weighted index of 30 of the largest, most widely held stocks traded on the New York Stock Exchange. The S&P 500 is an unmanaged group of securities considered to be representative of the stock market in general.

Whether or not you want to invest in an index fund depends on the type of investor you are. Keep in mind that index funds are different from normal mutual funds. Most mutual funds are actively managed, so a fund manager is constantly picking new or different stocks to go into the fund. This active attempt to beat the market is based mostly on timing and choosing the right stocks and bonds. Under some conditions, an actively managed account may achieve gains a passively managed account would not. Index funds, on the other hand, are a passive investment, meaning they are not actively managed.

But one of the most attractive parts of index funds stems from the lack of active management. Because they don’t require the same constant administration and attention as an actively managed mutual fund, their expense ratios are generally lower.

Some say if you can’t beat a market, you might as well join it, which is one of the biggest attributes of an index fund. Keep in mind that while an index fund is designed to match the overall gains of the index it follows, it will also participate in the declines. And while the fund tries to mirror an index, the return on the fund will always be slightly less due to management fees.

So are index funds for you?

That depends on your investment style. As always, you should check with a financial professional before investing and decide if index funds fit in with your overall investment strategy. But in the end, index funds offer an alternative way to potentially increasing your wealth and achieving your financial goals.

Investing involves risk, including loss of principal. An investor’s shares, when redeemed, may be worthless or more than the original investment price. An investor should carefully consider the investment objectives, risks, charges, and expenses of a mutual fund before investing. The fund prospectus contains this and other information about the fund. Contact your advisor or the fund company for a copy of the prospectus, which should be read carefully before investing.

Written by Securities America for distribution by Hunt Country Wealth Management.

Have questions about retirement, investing, or financial planning?

 

Hunt Country Wealth Management can help.
Click below to explore our services, or schedule a 15-Minute Discovery Call to talk with an advisor.

Hunt Country Wealth Management Logo

At Hunt Country Wealth Management we specialize in providing personalized financial services tailored for individuals aged 50 and above. From retirement planning to comprehensive investment management, our experienced team is here to guide you every step of the way.

Looking for Guidance? Schedule a 15-Minute Discovery Call

Discover the single most important shift you need to make before you retire...

Download your FREE Retirement Guidebook™: Understanding The Retirement Shift today!

By: Chris Merchant, CFP® 

Related Posts

What Investors Need to Know About FDIC and SIPC

What Investors Need to Know About FDIC and SIPC

About the U.S. Banking SystemAbout the U.S. Banking System With recent headlines about two failed U.S. banks and their ripple effect throughout the banking sector, we want to summarize the latest information on this evolving event. We assure you we are monitoring the...

read more
New Home Office | Winchester, VA

New Home Office | Winchester, VA

We are thrilled to announce that Hunt Country Wealth Management has moved to 804 Amherst, in the heart of Winchester, Virginia! For years, we have been searching for the perfect location to call our home. We are grateful to have found such a beautiful, historic spot...

read more
2023 New Year’s Resolution Success

2023 New Year’s Resolution Success

Top New Year Resolutions for 2023 Here are some of the most popular New Year Resolutions for 2023, as well as some tips on where you can access resources to support your success. Stay Fit and Healthy MSV Walking Trails HelloFresh- Meal Kits Virginia Bucket List Hikes...

read more
We believe retirement should free you. It all starts with a plan.

Have Questions? Schedule 15-Minute Discovery Call