Mutual funds have been around for a long time - since the early 1970’s they have increased in popularity with each year - billions and billions of dollars are now invested in mutual funds, making them one the most popular investment vehicles.
A Popular Option As A Mutual Fund - Index Funds
Although mutual funds can be sorted into a number of different categories, one of the most useful types of mutual funds is the index fund. This type of fund is very popular and widely held and for good reason.
Index Funds for Low Fees
Index mutual funds are a kind of mutual funds that select a wide variety of stocks and securities with the goal of matching the returns of a well-known stock market index. Some mutual funds are intended to match the Standard and Poors 500, while others are to match the return, which is the up and down of the Dow Jones Industrial Average.
Index funds advantages
Two of the many advantages of index funds are featured below. For example, index funds typically have low management fees because they don’t require much work for a manager, so you end up paying less.
Active management is when the fund has a fund manager who chooses what to buy and sell to maximize the return of the fund. Active management usually entails frequent buying and selling, incurring costs associated with such transactions.
And, active management requires that a fund manager be hired who is an expert in stock picking and trading. Such a manager, of course, requires a salary commensurate with the manager’s ability. Index funds, by contrast, require no active management. The stocks are chosen, often by a computer program, to match the return of the index with the least possible trading and virtually no discretion necessary on the part of the fund’s management.
A second advantage to index funds is tied to the first. Since more than half of the universe of managed funds under perform the broad market indexes, when you choose an index fund, you can be assured that your fund will not be in that under performing group.
So you get the advantage of lower overall fees charged by the mutual fund investment company, and the advantage of having your investment perform just about as well as the market index which it tracks. Next time you are shopping for an investment vehicle, give index mutual funds some thought.