An index fund is an investment fund that tracks the performance of a specific market index. It can either be a mutual fund or an exchange-traded fund (ETF) that mimics the performance of a preset basket of stocks, bonds, or other assets. Index funds are a popular investment choice among investors, thanks to their low fees, diversification, and ease of use.
You just can't argue with the power of index investing, right? After all, index funds boast ultra-low fees and simply track the market. According to Morningstar, index funds have outperformed actively managed funds over the past decade, with around 70% of large-cap funds underperforming their benchmarks.
Billionaire Warren Buffett continually recommends investing in the S&P 500. Here's why and how much you'd have if you invested $1000 a year in an S&P 500 index fund for the past 10 years:
The S&P 500 tracks the performance of the 500 largest publicly traded companies in the U.S. Investing in an S&P 500 index fund means you're investing in the heart of the U.S. stock market. If you invested $1000 a year in an S&P 500 index fund for the past 10 years, you'd have around $17,000 today.
Here are options for how to invest in the S&P 500 Index, widely considered to be a benchmark for the health of the U.S. stock market:
One of the easiest ways to invest in the S&P 500 index is to buy an S&P 500 index fund. Many investment companies offer index funds that track the S&P 500, including Vanguard, Fidelity, and Charles Schwab. You can also invest in an S&P 500 ETF, such as SPDR S&P 500 ETF Trust (SPY) or iShares Core S&P 500 ETF (IVV).
Index funds are an easy, low-fee way to invest. It might be the smartest and easiest investment you ever make. Index funds are a great way to get broad market exposure and diversification. They're also an excellent way to save on fees compared to actively managed funds, which can charge 1% or more in fees annually.
The best index funds can help you build wealth by diversifying your portfolio while minimizing your fees. Investing in an index fund is less risky than investing in individual stocks because you're spreading your investment across a large number of companies. This diversification reduces your exposure to the risks of individual companies and sectors.
Beginner investors can benefit from the low fees, diversification, and transparency provided by Vanguard's fund lineup:
Vanguard is one of the most popular providers of index funds, with a wide range of low-cost and diversified funds. Vanguard's index funds have some of the lowest fees in the industry, making them an excellent choice for beginner investors who are just starting out.
No matter your investing style, these top Fidelity mutual funds offer solid active management at relatively low costs:
Fidelity is another popular provider of index funds, with a range of low-cost and actively managed funds. Fidelity's index funds are some of the cheapest in the industry, with expense ratios as low as 0.015%.
S&P 500 index funds are an excellent way to get diversified exposure to the heart of the U.S. stock market. They're a low-cost and easy way to invest in the stock market, making them an excellent choice for beginners and experienced investors alike.
