Index Funds

[sgiusti87]

If anyone has a spare moment, could you please explain to me what index funds are? The more I look into them, the more confused I get. I guess I know less about finance than I thought, but then well... what else are college and books good for? Thanks in advance

[poundwise]

Index Funds and Indexes, Explained

[Ima saver]

I have most of my IRA and roth IRA money in an Index fund for several years and have been very hapy with it. (Vanguard Index 500)

[scfr]

Here are a couple books that will not only explain index fund investing but will make you a true believer:

"What Wall Street Doesn't Want You to Know: How You Can Build Real Wealth Investing in Index Funds" by Larry E. Swedroe

"The Smartest Investment Book You'll Ever Read: The Simple, Stress-Free Way to Reach Your Investment Goals" by Daniel R. Solin

[jIM_Ohio]

Index- usually a broad "average" of similar things

S&P 500- average performance of 500 relatively large companies
Russell 2000 average performance of 2000+ relatively small companies
Lehman Brothers Aggreggate Bond- average performance of government and corporate bonds.

index investing is done by buying either all or part of the securities in the index.

Most S&P 500 mutual funds buy all 500 stocks in the index, in the proportions of the index.
Most Russell 2000 mutual funds buy some of the 2000 stocks in the index.

[Fern]

The nice thing about index funds is that the annual expenses you pay for management of them is much lower than an actively managed mutual fund, becus, as others have pointed out, it's simply a collection of funds representing an average of some category, such as S&P500.

I've read many times that index funds slighlty outperform more expensive actively managed funds, yet everyone likes to try to do better. Historical performance shows they really don't do better.

[EverydayFinance]

These days, there are even more options out there; the financial innovations available to routine investors has been phenomenal. ETFs are now available with even lower expense ratios and tax consequences for just about everything, including the indices listed above. Aside from your conventional US indices, you can mimic everything from emerging markets to high yield stock indices; real estate to energy ETFs. These can be much easier to trade in and out of and carry only your typical trading fee as opposed to $25-$50 to trade some funds in electronic accounts. You can generally get in for free with the likes of Vanguard, etc. but there's an application process/timeframe associated with setting up accounts, transferring funds, etc. I've profiled plenty of these odd-ball niche ETFs, and the links above are great resources as well. Good luck, these are all great options compared to trying to trade individual stocks for most people.