Step 4.Nachnite with an index fund

Step 4.Nachnite with an index fund
Because an index fund is the easiest and best choice, it is undoubtedly our first recommendation to investors of all levels, from beginners to experienced professionals. Convenience, good profitability, low cost, simplicity, - all these factors are significantly higher than what we offer brokers a full Commission and actively managed mutual funds. "
Index Fund S & P 500
Let us once and for all establish the standard for market growth. During the past 50 yearsthe S & P 500, which includes the 500 largest and most profitable companies in the U.S. rose an average of 13.6% annually.
This means that if you invested $ 10,000 in the S & P 500 fifty years ago, today you might call a broker with low commission and issue an order to sell your position for $ 5.78 million, then pay $ 1.62 million tax and get $ 4.16 million, but most people who put their money into mutual funds that have not received such impressive gains, with the exception of those who had invested their money in a special type of mutual fund - in an index fund.
With low-cost, passively managed mutual fund, simulating the S & P 500 ("index fund"), you can almost get a return on the S & P 500 minus the minimum cost. Means an index fund are managed by computer programs that lead all the indicators in line with stock market indices. Such funds do not "well trained" wise managers, actively carrying out the daily changes in the distribution of the fund's portfolio.
And what is accomplished in the past 50 years, actively managed funds, versus the index? Nothing even remotely similar to the achievement of index funds. Actively managed funds yielded returns, on average, 11.8%, which is 1.8% lower than the index.
Notice how important is this "little" difference, as 1.8%. Over the past 50 years, investments of $ 10,000 invested in an actively managed mutual fund, would produce only $ 2.59 million, that is, less than half the profit index fund. It employs the compounding effect of a devastating effect on how "small" costs can hurt your profits. Imagine these "small" costs imposed on you to actively managed funds, as the Colorado River, which flows through the Grand Canyon, year after year and eroding your profits to the state of a deep abyss.
If you are involved in the plan 401 (k) or 403 (b), and the proposed list, you have any index fund, we suggest that you not hesitate to make it your only choice.
"Spaydersy"
You can also think about investing in a close relative of an index fund - Depositary Receipts Standard & Poor's (Standard & Poor's Depositary Receipts). SPDR'y, often called "spaydersami" - are the tools that are similar to stocks and behave similar to that of the S & P 500. They have several advantages over the funds. They are traded on the American Stock Exchange under the ticker symbol SPY, and each share is worth about one-tenth of the value of the S & P 500.
Indices in addition to S & P 500
Are all index funds track the S & P 500? Not at all. Name any high measure of the market, and certainly there is some index fund mimics exactly it: Russell 2000 (index of small capitalization companies in 2000), Wilshire 5000 (the entire stock market, in fact, it includes nearly 9,000 publicly traded companies, but Wilshire 8934 would have sounded not so gracefully), Dow Jones Indust r ial Average ... List of different indexes, which are based on index mutual funds, becoming longer. All we like them. Almost everything.
In the short run the different indices yield different returns, but few scientific studies have shown that various sectors of the market in varying degrees, brought similar results after a long period of time. Last year (1998) The S & P 500, including the largest companies in the U.S., returned 28% yield, and S & P MidCap 400 (tracking of mid-cap) - 9% less. However, over the past 10 years the average annual yield on the S & P 500 was 19.20% and the index S & P MidCap 400 - 19.28%. Not too much difference, is not it?
Some middle-market needed more time to catch up with these figures. The Russell 2000 index, the best known index of small capitalization companies, bringing an average of 12.92% over the past 10 years. Does this mean that small-cap companies with less than successful when compared with large or that you should avoid index funds based on indexes of small capitalization? No, if you're going to invest for the long term. Over the past 40 or 60 years yield the largest and smallest companies were almost identical.
But examine carefully what some companies try to sell you in the form of stock "index fund". The basic idea of ??investing in an index fund is not to buy "hot" code, or to buy the "cold" code before it will become "hot." Investing in an index fund - either in an index fund - gives excellent results for those who hold their shares for a long time, because the costs of index funds are extremely low. For example, the Vanguard Index Fund Fund collects from its depositors a fee of only 0.18% per year. On the other hand, the brokerage firm with a full Commission Morgan Stanley should be the S & P 500 (buying in exactly the same stocks as the fund Vanguard) with annual costs of 1.5% - nearly 8 times more!
We remind you that the only reason you do not make sense to use the services of the Vanguard 500 Index Fund or any other index fund with low costs - is if you think you can beat the results after deducting all of your investment costs: market research, fax payment and financial newspapers, business newsletters, etc. If you can not beat the index, it is better just join it and add it to your new savings each year. Some decades later, you (and your spouse) will be happy that you did.
Some index funds allow you to open a regular account when making an initial deposit of only $ 500 if you decide to participate in the plan of automatic investments, adding $ 50 every month. If you want to start investing, having even a smaller sum, read Step 5: All of the accounts of the type of DRIP.