By Brett Arends. Every two weeks, all around the country, working Americans have money deducted from their paychecks and diverted into their 401(k)s. Many of these retirement accounts include investments in S&P 500 index funds, which have become increasingly popular in recent years. S&P 500 index funds are passive investments that allow investors to match the performance of the S&P 500, an index featuring the 500 largest publicly traded companies in the United States.
Investing in S&P 500 index funds offers several advantages. Firstly, they provide broad exposure to the U.S. stock market, allowing investors to participate in the overall growth of the economy. Secondly, these funds have historically outperformed most actively managed stock funds, making them an attractive option for those seeking steady long-term returns.
When deciding between investing in dividend exchange-traded funds (ETFs) and the S&P 500 index, it is essential to understand your investment goals. Dividend ETFs focus on generating income through regular dividend payments, while S&P 500 index funds prioritize capital appreciation. If you are looking for a passive investment that mirrors the performance of the overall market, S&P 500 index funds are a suitable choice.
To purchase an S&P 500 index fund, follow these steps: 1. Find your preferred S&P 500 index fund. 2. Access your investing account or open a new one if needed. 3. Determine the amount you wish to invest. 4. Place a buy order for the chosen index fund. It is crucial to review the fund's expenses, historical performance, and any minimum investment requirements before making a decision.
Invesco S&P 500 Equal Weight ETF (AMEX:RSP) is an example of an index fund that aims to provide broad exposure to large-cap blend stocks. RSP follows an equal-weighted approach, meaning that each stock in the index receives the same weight, regardless of its market capitalization. This strategy can offer a more balanced exposure to the market and potentially lead to improved performance.
Passive management is the primary strategy employed by index funds, in contrast to active management. Actively managed stock funds often struggle to outperform their benchmarks due to higher fees and the challenges of consistently selecting winning stocks. In contrast, passive index funds aim to match the performance of a specific market index, such as the S&P 500, by holding a diversified portfolio of stocks that mirror the index's composition.
The Pacer Trendpilot US Large Cap ETF (AMEX:PTLC) is an example of a fund that utilizes a trend-following strategy. PTLC uses the 200-day moving average of the S&P 500 total return index to determine when to shift its asset allocation between stocks and cash. This approach aims to protect investors during market downturns and capture potential gains during uptrends.
