Index funds are a great way to invest in the stock market with low risk and low fees. Plus, it can be completely automated, which makes for a stress-free investing strategy!
While there are many different ways to invest in the stock market as a “retail investor”, investing in index funds is just one way that many people (including myself!) take part in.
Don’t know what the heck an index fund is?
An index fund is a mutual fund or ETF with a portfolio that tracks a market index like the S&P 500, which is a very popular index comprised of 500 of the larger publicly-traded companies in the U.S.
Instead of hand-picking individual stocks to invest in (which – let’s face it – is boring and time consuming!), you are actually purchasing a percentage of all the stocks in the index of the index fund that you invest in.
Even the GOAT Warren Buffett recommends investing in index funds. So I’d say they’re pretty awesome!
But don’t just take my (and Warren Buffett’s) word for it. Always do your own research before investing in anything!
Now here are a few reasons why I love investing in index funds!
Diversification
When we buy shares of an index fund, we instantly gain access to a portfolio that consists of a large number of securities.
For example, if you choose to purchase $VTI (Vanguard Total Stock Market Index Fund ETF), I instantly own the entire U.S. stock market! Just from the purchase of an index fund!
And just think of how diversified you’d be when you own the ENTIRE stock market!
Individual stocks will never do that for you!
Easy To Set Up & Automate
Index funds are a very passive way of investing because you’re not going through and picking out individual stocks to invest in. Like I said earlier, one index fund can have hundreds of stocks in it!
Once you’ve selected an index fund to invest in, you can automate your contributions.
For example, $500 gets automatically deposited into my “general investing” account at the beginning of each month – without me ever having to press a button.
That’s because I set up these automatic contributions almost 2 years ago!
Investing doesn’t get simpler than that.
Long-Term Growth Potential
Index funds are perfect for long-term investors! (*Cough cough* Warren Buffett approves, and he’s one of the longest long-term investors out there!)
The S&P 500 usually averages a return of over 10% a year. I’d say that’s much better than trying your hand at picking out individual stocks to invest in!
When you buy into the S&P 500, or any other index, your investments will grow long term and in the future you’ll be able to reap the benefits of compound interest!
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