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Mutual Funds Index Funds for High Returns and Low Fees

Billions and billions of dollars have found their way into mutual funds since they first became popular in the early 1970s, which makes them now one of the best-loved investment options. A Popular Option As A Mutual Fund - Index Funds Although mutual funds can be sorted into a number of different categories, one of the most useful types of mutual funds is the index fund. This type of fund is very popular and widely held and for good reason. Index Funds for Low Fees Index mutual funds are mutual funds that invest in a cross section of stocks and securities chosen in such a way as to attempt to match one of the popular stock indexes' returns.

There are mutual funds that attempt to match the Standard and Poors 500, for example, as well as other funds that try to match the return (up and down) of the Dow Jones Industrial Average, just to give a couple examples of index funds. Some of the index funds advantages There are several advantages to owning index funds, and I'll elaborate about two of them here. The first advantage of index funds is that the average expenses are comparatively lower since they do not need active management. If a manager is controlling decisions on buying and selling particular stocks to get a higher return, this is called active management.

An actively managed fund has a large turnover of equities resulting in significant costs. A fund that is actively managed requires a manager adept at stock trading. An expert manager, therefore, would garner a salary that is equal to his or her experience and skills. And, active management requires that a fund manager be hired who is an expert in stock picking and trading.

Such a manager, of course, requires a salary commensurate with the manager's ability. Index funds, by contrast, require no active management. The stocks are chosen, often by a computer program, to match the return of the index with the least possible trading and virtually no discretion necessary on the part of the fund's management.

The second good reason for selecting index funds is similar to the first. Choosing an index fund means your returns will track a market index, which means that your fund will be generating a higher return than the over 50% of funds that do worse than those indexes. That way, you pay the company less in fees, and your investment normally does about as well as the stock market index it is tied to. When looking for your next investment opportunity, you should consider index mutual funds.

Discover about index mutual funds and other investment and personal finance issues at Mutual Fund Trader, a top source of information covering the mutual fund industry.



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