Sep 19 · 3 min read
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Want to invest at a low cost? Trying to buy all your favorite stocks? Looking to grow your money with minimal effort? Well, the Index Fund Strategy is for you!
The Index Fund Strategy allows you to take a “hands-off” but lucrative approach to investing. You won’t even have to know how to analyze a stock chart or read a company’s balance sheet. This strategy involves regularly buying index funds such as Exchange-Traded Funds (ETFs) or Mutual Funds that track major indices like the Dow Jones, S&P 500, and the NASDAQ. Although these indices consist of tens to hundreds of stocks, index funds allow you to buy them all at once and at a low cost. This is because ETFs and Mutual Funds are “baskets” of stocks, bonds, and other investments that you can buy as a single share.
As an example, the S&P 500 includes 500 of some of the largest and most successful U.S. companies. If you wanted to buy 1 share of every company in the S&P 500, it would require a lot of cash. Instead, you can buy one index fund that tracks the S&P 500 for a few hundred dollars. Without index funds, it would take thousands of dollars to build a truly diverse portfolio. Fortunately for investors, index funds enable you to accomplish this with a lot less.
Index funds also make it possible for you to easily invest in the first two asset classes of the asset allocation strategy: stocks and bonds. Because there is a wide variety of ETFs and mutual funds that track either group, it is easy to buy only a few index funds and accomplish a diversified and properly allocated portfolio.
So you may be wondering, “should I use ETFs or mutual funds with this strategy?” While both have a lot in common, there are some key differences that will help you make this decision.
Ultimately you’ll have to decide on which index fund is the best for you, but either will serve as a great investment choice!
So now that you know what the index fund strategy is and you’ve decided on whether you’ll use ETFs, mutual funds, or a combination of both, it’s time to take this strategy to the next level.
In order to maximize your gains using the index fund strategy, you should strongly consider using commission-free index funds, adding cash to your investments on a regular basis, choosing the funds with the lowest net expense ratios, and holding these investments through the ups and downs over a long period of time. History shows this will allow your money to grow at the largest rate possible.