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02-06-2013, 09:28 PM | #1 |
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Index fund vs mutual fund
For the experts in here, I have a question, I'm trying to start investing, I'm looking at an index fund with vanguard, ill start with S&P 500. I don't have enough time to keep up with the stock market and manage stocks personally. So I heard and read a lot about index funds being better than mutual funds. What do you guys think?
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02-06-2013, 10:59 PM | #4 |
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It is really based on one's level of risk tolerance and situation including age, number of years to retirement, and the like. Index funds are a type of mutual fund which mimics an index. So if you buy shares of the S&P500 Index Fund with Vanguard (who are known to have some of, if not THE, lowest fees in the business, at least last time I checked), you essentially are buying a portion of a share of every company represented by that index with each share of the fund. Indexes are widely followed so you always have a sense of where you're at - you turn on the news and you see Dow Jones, S&P500, NASDAQ, etc. numbers all the time; as the index moves up, so do your shares, and vice versa; On the other hand, "regular" mutual funds will have a specific sector or set of companies that the fund managers prefer to invest in. The general idea is that index funds are more diverse and more long-term. You can look at the history of the S&P500 (although history does not indicate future performance, of course) and see how it has performed over decades and see if that sort of return over 5, 10, 20, 40, etc. years would have been beneficial to you, hypothetically speaking. One thing to note is fund fees. Vanguard is known to have low fees for the management of their Index funds. This is important, because as you continue to invest, and reinvest dividents, lower fund fees will not eat into your earnings and ability to build up as much as with other funds. Make sure to read or at least peruse the prospectus of any fund you are considering investing in, even if you're comparing an index fund offered by one company vs. another, because fees will be different. For the more risky funds, it's a good idea to have some knowledge and understanding of the particular sector that fund tends to invest heavily in, as that can help you to determine your level of willingness to take risks based on a more educated opinion rather than "this fund has done well over the past N years so it must be good". |
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02-07-2013, 12:44 AM | #6 | |
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02-07-2013, 08:24 AM | #8 | |
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02-07-2013, 12:13 PM | #9 | |
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Others already point this out, it comes down to your risk level. I personally do not go into an index fund, not interested in making the average the total market delivers. When you look is are only a few good investment driving the average, if you focus on them you beat the average. So I have straight stocks, some focus mutual funds to spread the risk. I stay way from Bonds, not interested in financing bad spending decisions by our governments. I also have REAs which kicks out some really nice dividend, it like owning real estate without having to deal with tenets and worrying about them burning down your property. I do not have lots of time, but I have some amount of time to keep an eye on my money. My returns have been better then an index fund has returned |
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