As our most recent new visitor, we welcome you and recommend that you sign up for our free e-course on becoming a millionaire. It will change your life! Thanks for visiting!

Even if we are investors, few of us qualify as professional investors. That is to say that while we may have money invested in the stock market, few of us truly have the expertise thats needed in order to become a successful investor.

If that describes you, as it does the majority of investors, index funds are probably your best bet to achieve investment success. Index funds invest money to correlate with major financial indices, such as the S&P 500 or the Dow Jones Industrial Average. Even more specifically, they can be correlated to indices that represent market sub-sectors, such as various industry and commodity indices.

No investment selection process

Probably the most time-consuming aspect of investing is researching specific investment selections to determine their suitability for inclusion in a portfolio. It can take many, many hours to determine if a position in just one company is a good fit for your portfolio. It can take a lot more time than that to identify enough companies to completely fill your portfolio.

And its not only the time factor either. There are volumes of information out there about just about every company that is listed on the major exchanges, and weeding through it and processing what it means is beyond the ability of most people.

By investing in index funds, yore investing in the entire market without having to do a single bit of research on any of the components of that market. Thats a lot of time and effort saved.

It frees up your time to do other things

Keeping the above in mind, one of the most valuable aspects of index funds is that it allows you to invest in the stock market while freeing your time to do other things.

Most of us have jobs or businesses that are not related to investing in any way. We are also trying to build compelling personal lives. All of that takes time, but if were spending too much time selecting and tracking investments, we might make more money, but we will certainly have less time for everything else that we would like to do.

Removes the perceived need to beat the market

In the investment world its fashionable to talk about beating the market; its a little like being an art critic on Wall Street. But those words seldom measure up to reality. Few people  and even few investment managers  actually do beat the market on a consistent basis. Most who do, will outperform the market for a year or two, and then under-perform it for the next two or three. Talk about spinning your wheels in the mud!

When you remove the need to beat the market, it sort of takes the pressure off. You are content to merely track the market with index funds. And that even has a more tangible benefit. By tracking the market, instead of trying to beat it, you also lower the risk of being wrong. The bad feeling you get from being beaten by the market is usually much more intense than the good one that comes when you beat it. In this way, index funds go long way toward removing the wild emotional swings that those who try to beat the market experience.

Lower fees than stocks or actively managed funds

Since index funds are tied to specific markets, theres very little turnover within the funds. Hers a cosmic rule of investing: more transactions equal more investment fees! Investment fees are expenses that will reduce the performance of your investments. One of your objectives in investing should be keep these to a minimum, and that is what index funds do.

Youre probably not an investment expert

Most of us have jobs or businesses in which we might qualify as experts. That being the case, it will probably be very difficult to become an investment expert at the same time. Theres only so much information any of us can assimilate, and if you spend too much time working on increasing your investment knowledge, your regular work might even suffer.

Theres a saying do what you do best and let others do the rest. By trying to become an expert in too many areas, you might end up being an expert in none of them. Investing is actually more technical and complicated than most of us understand, and is best left to the experts. Sometimes even they dont know how to handle it either. Thats where index funds come into the picture.

Think of them as a default investment setting.

What are your thoughts about index funds?

Powered By DT Author Box