Are you unsure what to do with the money you’ve saved? You’ve probably heard that investing in the stock market is a good way to accumulate wealth – but you’re probably also unsure about getting started. You’re asking, “What’s the best type of investment for me?” and “How do I pick the winners?”
When you want to invest in the stock market but don’t know which stocks to purchase or which mix of mutual funds to buy, there’s another way to gain the returns of the market without having to choose individual stocks or bonds.
This option is to invest in index mutual funds or exchange traded funds (ETFs).
What are index mutual funds and ETFs?
Index Mutual Funds and ETFs are investments that track company stock prices in the stock market. One of the most popular indexes is the Standard and Poor’s 500 (S&P 500), which tracks the stocks of 500 leading companies in leading industries; many consider it one of the best representations of the U.S. stock market. Buying an index mutual fund or ETF-based fund on the S&P 500 allows you to invest in those companies with only one investment.
What’s the difference between index mutual funds and ETFs?
If index mutual funds and ETFs both invest in the stocks of a specific index, what’s the difference between the two investments? The main difference is that index mutual funds trade once a day through the fund company – like all mutual funds – and are subject to purchase fees and minimum investment amounts. ETFs trade on an exchange – like all individual stocks – and investors pay commission on each trade; you’ll also need a brokerage account to purchase stocks to trade an ETF. Talk to your financial adviser to determine which type of fund is best for you and your goals.
Why invest in an index mutual fund or ETF?
According to Kiplinger, “Over the past 10 years, less than 30% of U.S. actively managed stock funds outmatched their benchmark.” So not only did index mutual funds and ETFs outperform most actively managed stock funds, they did so while also charging lower fees and commissions. Funds that track benchmark indexes don’t require active management and incur fewer expenses, which translates to fewer fees and greater returns for the investor.
The Wall Street Journal lists a few of the most popular ETFs:
- SPDR S&P 500 ETF. This ETF is based on the S&P 500 index.
- PowerShares QQQ Trust. This ETF is based on the Nasdaq 100 index.
- Diamond Trust Series. This ETF is based on the Dow Jones Industrial Average.
Investing in an index mutual fund or an ETF can make your financial dreams a reality, and Holdfast Wealth Management will assist you in finding the right investments for your portfolio. Contact us today and get started down the path to wealth.