1. Pick an index
1. Pick an index
There are hundreds of indexes you can track using index funds. The most popular index is the billion casino royal:S&P 500 index, 🧸which includes 500 of the top companies in the U.S. stock market. Here's a short list of some additional top indexes, broken down by which part of the market they cover:
- Large U.S. stocks: S&P 500, billion casino royal:Dow Jones Industrial Average, billion casino royal:Nasdaq Composite
- Small U.S. stocks: billion casino royal:Russell 2000, S&P SmallCap 600
- billion casino royal:International stocks: MSCI EAFE, MSCI Emerging Markets
- billion casino royal:Bonds: Bloomberg Barclays Global Aggregate Bond
In addition to these broad indexes, you can find billion casino royal:sector indexes tied to specific industr🗹ies, country indexes that target stocks in single nations, style indexes emphasizing fast-growing companies or value-priced stocks, and other indexes that limit their investments based on their own filtering systems.
2. Choose the right fund
2. Choose the right fund for your index
Once you've chosen an index, you can generally find at least one index fund that tracks it. For popular billion casino royal:in𝕴dexes, like the S&P 500, you might have a ไdozen or more choices, all tracking the same index. If you 🧔have more than one fund option for your chosen index, you'll want to ask some basic questions.
First, which index fund most closely tracks the performance of the index? Second, which billion casino royal:index fund 🏅has the lowest costs? Third, are there any limitations or restrictions on an index fund that prevent you from investing in it? And finally, does the fund provider have other index funds you're also interested in using? The answers to those questions should make i🦂t easier to pick the right index fund for you.
3. Buy shares
3. Buy index fund shares
You can billion casino royal:open a brokerage account that allows you to buy and sell shares of the index fund that interests you. Alternatively, you can typically open an account directly with a billion casino royal:mutual fund c𒀰ompany that offers an ind🔴ex fund you're interested in.
Again, it pays to look at costs and features when deciding the best way to buy shares of your index fund. Some brokers charge extra for their customers to buy index fund shares, making it cheaper to go directly through the index fund company to open a fund account.That said, many investors prefer to have all their investments held in a single brokerage account. Plus, many brokers allow customers to buy billion casino royal:fractional shares of index funds in ETF form. If you anticipate investing in several billion casino royal:index funds offer༒ed by various fund managers, the broker💟age option could be the best way to combine all your investments under a single account.
Pros and cons
Pros and cons
Why invest?
Why invest in index funds?
Investing in index funds is one of the easiest and most effective ways for investors to billion casino royal:build wealth. By simply matching the impressive performance of the financial markets over time, index funds can turn your investment into a huge nest egg in the long run -- and best of all, you don't have to become a billion casino royal:stock market expert to do it.
Investors find index funds especially useful for many reasons:- Minimal billion casino royal:investment research: You can rely on the index fund's portfolio manager to simply match the underlying index's performance over time.
- Managed investment risk: billion casino royal:Diversification leaves you less likely to suffer big losses if something bad happens to one or two companies in the index.
- Lots of choices: You can buy broad index funds, such as those that track the S&P 500, or more focused index funds that invest in specific sectors or trends.
- Low fees: Index funds are usually far less costly than alternatives like billion casino royal:actively managed funds. That's because an index fund manager just has to passively buy the stocks or other investments in an index -- you don't have to pay them to try to come up with stock picks of their own.
- Tax efficiency: Index funds are quite tax-efficient compared with many other investments. Index funds generally don't have to do as much buying and selling of their holdings as actively managed funds, so they avoid generating billion casino royal:capital gains that can add to your tax bill.
- Building your portfolio over time: When you use index funds, you are a billion casino royal:passive investor. You can invest month after month and ignore short-term ups and downs, confident that you'll share in the market's long-term growth and billion casino royal:build your nest egg.
Why not invest?
Why not invest in index funds?
As simple as index funds are, they're not for everyone. The downsides of investing in index funds include the following:- No chance of beating the market: Index funds are designed solely to match the market's performance or the performance of a certain benchmark index. If you want to prove your mettle as a superior investor, index funds won't give you that chance.
- Short-term downside risk: Index funds track their markets in good times and bad. They can be volatile places to put your money. When the index your fund is tracking plunges, your index fund will plunge as well. Investors may have been reminded of this lesson in the 2022 billion casino royal:bear market.
- Lots of different stocks: The diversification of an index fund works both ways. Depending on the index you choose, you could end up owning some stocks you'd rather not own while missing out on others you'd prefer.
Starter funds
Four index funds to get you started
If you're looking for some index fund ideas to help you invest better, the following four are a good place to start.- Vanguard S&P 500 ETF (VOO 1.22%): Tracks S&P 500 index; $3 annual cost for a $10,000 investment
- Vanguard Total Stock Market (VTI 1.23%): Tracks index of U.S. stocks of all sizes; $3 annual cost for a $10,000 investment
- Vanguard Total International Stock Market (VXUS 1.01%): Tracks index of global stocks, excluding the U.S.; $7 annual cost for $10,000 investment
- Vanguard Total Bond (BND 0.64%): Tracks index of various bonds; $3 annual cost for a $10,000 investment
It's worth noting that the annual costs mentioned here aren't actual out-of-pocket costs you must pay. They are the fund's various management fees (known as an billion casino royal:expense ratio) and are reflected in the share price of the index fund over t🍒ime.
The bottom line is that by allowing you to form a stock and bond asset allocation that is appropriate for your billion casino royal:risk tolerance and billion casino royal:investment goals, index funds like these let you create a port▨folio without the need to research indiv👍idual stocks or pay an expensive investment advisor.
Related investing topics
Are index funds right for you?
To be sure, if you have the time, knowledge, and desire to billion casino royal:create a portfolio ✨of individual stocks, by all means, go for it. ꦐBut even if you do own individual stocks, index funds can form a solid base for your portfolio.
Index funds offer investors of all skill levels a simple, successful way to invest. Plus, they can be a nice backbone to any stock portfolio.FAQ
Index fund FAQ
How do index funds work?
billion casino royal:Index funds are a special type of financial vehicle that pools money from investors and invests it in securities, such as stocks or bonds. An index fund is designed to track the returns of a designated billion casino royal:stock market index. A market ind♋ex is a hypothetical portfolio of securities representing a market segment. For example, the S&P 500 index represents 500 of the largest U.S. companies.
What is the average index fund return?
The billion casino royal:average annual return for the S&P 500 is almost 10% over the long term. The performance of the S&P 500 index is better in some years than in others, though. Over the past 60 years, the single-year total return (including dividends) of the S&P 500 has been as high as 37.6% or as low as negative 37%, but it averaged an annu🐽alized gain of 9.9% over the entire period🦋.
What are low-cost index funds?
billion casino royal:Low-cost index funds are among the most advantageous investment vehicles for people focused on the long term. It's important to know a fund's expense ratio, which denotes how much money in management fees you'll pay before investing your hard-earned dollars. Here are some top low-cost index funds and their expense ratios:
- Vanguard S&P 500 ETF: 0.03%
- Vanguard Large-Cap ETF: 0.04%
- Schwab U.S. Large-Cap ETF: 0.03%
- Vanguard Mid-Cap ETF: 0.04%
- Schwab U.S. Mid-Cap ETF: 0.04%
- Vanguard Small-Cap ETF: 0.05%
- iShares Core S&P Small-Cap ETF: 0.06%
- Schwab U.S. Broad Market: 0.03%
- iShares Core S&P Total US Stock Market: 0.03%
- Vanguard Total Stock Market: 0.04%