Index funds are the easiest, safest way for new investors to get into the market, and for seasoned investors to grow and preserve their wealth.
- Easy to understand
Index funds are perfect for beginner investors because they give you the ability to purchase shares in the biggest companies without the need to do fundamental analysis or research every stock in the fund.
- Lower Risk Through Diversification
Index funds are made up of a basket of hundreds of stocks. If a single stock in the basket is performing poorly, there’s a good chance that another is performing well, which helps to minimize your losses.
On the other hand, if you buy individual stocks and they perform bad, your investments could take a bigger hit.
- Rate of return
Over the past 30 years, the S&P 500 index has delivered a compound average annual growth rate of 10.7% per year.
That means if you invested $10,000 in the S&P 500 index in 1992 and held on with dividends reinvested, you’d now have more than $170,000 without contributing any additional money!
- Investment safety
Since index funds track a market index (i.e., S&P 500 or Nasdaq) you are guaranteed an investment that is well diversified (your money is spread out across many stocks) and that’ll do as well as the stock market over time.
