Index funds: the simple way to invest
Why one low-cost fund beats picking stocks for almost everyone.
3 min read
An index fund buys a small piece of every company in a market. Examples are the S&P 500 and the whole US stock market. You don't bet on one company. You own a piece of all of them.
Professional fund managers over 15 years, after fees:
- About 90% Earned less than a simple S&P 500 index fund
- About 10% Earned more
The main reason is cost. Index funds charge very low fees. Fees come out every year, so low fees leave more of your money growing.
Can I lose everything?
Any stock fund can go down for a while. But a broad index fund owns hundreds or thousands of companies. To lose everything, almost every US company would have to fail at the same time.
The US stock market has recovered from every past drop and reached new highs. But recovery can take years, and the past does not promise the future. Use index funds for money you won't need for at least 5 years.
A complete plan can be 1 to 3 funds
- A US total stock market fund.
- An international stock fund.
- A bond fund, as you get closer to retirement.
Set up automatic investing. Then leave it alone, even when the news is scary.
Step by step: buy your first index fund