Index fund::index funds::mutual funds that make you want to check the daily stock quotes
76Too many terms, my head hurts!
Are you lost when it comes to understanding the terms of the stock market? Do words like Index Fund, mutual fund and exchange traded fund make you shake your head? You want to collect the best funds in your portfolio to drive your retirement strategy but you have no idea what all this nonsense means. The stock prices that fill the daily stock quotes look like nothing but more gibberish, leading you to want to stay out of this fray. A good financial advisor would be your best bet to make sure you know what is happening with your money as they can tell you every last excruciating detail of what is involved.
We can however discuss the basic tenets of one of these mysterious terms, that of the Index Fund. This is one of the myriad types of mutual fund choices you can use to super charge your investment portfolio so that your stock market experience is as profitable as possible.
My Mutual Fund Book A-Store
In my A-Store you will find several books to answer the in depth questions you have about mutual funds. Their are a littany of terms to read about and understand in the fabulous world of mutual fund investing, find out more here!
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An Index Fund is a type of mutual fund
So we do not get totally lost, let me refresh your memory about what a mutual fund is. A mutual fund is a type of security device in which a diversified group of stocks, bonds and other types of securities are collected to give the investor a way to spread their money over many different sectors of the economy. Mutual funds diversify your investments in such a way that they are less likely to be affected if a particular sector of the economy falters.
Mutual fund performance will almost always exceed stock performance in general, unless a particular stock just has an exceptional year. The reason is that the overall blend will usually give you a combined growth while the single stock is either good or bad on its own.
An Index Fund gets its name from its effort in trying to mimic a market based index. One of the more famous index names you will recognize is the Standard & Poor’s 500 Index. This is an index of 500 companies with what is considered a large amount of capitalization, which is overall value. These companies are listed on the two largest United States Exchanges, the NYSE (New York Stock Exchange) or the NASDAQ (National Association of Securities Dealers Automated Quotations).
Investment returns of the index usually exceed average mutual fund returns
Mutual fund returns were in the 10-15% range for most of the 1990s and early part of this decade. Many times the index fund was at least that if not better. The broad diversification usually causes mutual fund performance to lead the market and the further diversification and lower costs of the Index Funds meant they delivered even better performance.
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Investment returns of the index funds usually exceed average mutual fund returns
Mutual fund returns were in the 10-15% range for most of the 1990s and early part of this decade. Many times the index fund was at least that if not better. The broad diversification usually causes mutual fund performance to lead the market and the further diversification and lower costs of the Index Funds meant they delivered even better performance.
Current stock market prices limit fund performance for all types of funds
The economic downturn that began in 2008 has affected mutual fund performance across the board. At least in the United States there is no real sector of the economy that is booming, so even the diversification of the mutual funds does not save the investor from the carnage. Every stock index is toiling in a narrow range, which usually points downward more often than up.
Buying at the current stock market prices is a good idea though. It is when markets are down that you can get quite a lot of value for your money. Many of the funds have solid mixes of companies that will certainly survive the current stock market uncertainty and economic conditions to thrive again.
It won’t be long before the stock quotes make the news again as they begin another assault on record highs of the major stock indexes. Mutual fund returns will again total in the double digits of percent return and everyone will turn back to the stock market to try to make their retirement dreams a reality.
Index Funds are a great vehicle to use in your attempt to follow the dream. The best performing mutual funds are highlighted in the various financial periodicals, such as the Wall Street Journal, The Economist Magazine, Money Magazine, Kipling, Forbes, Fortune and the like, so you can do your homework to see what particular stocks they choose for their particular fund.
Stock mutual funds have great potential to turbo-charge your investment strategy
Many people will shy away from the stock market due to the results of the last couple of years and the horror stories of those who lost significant amounts of money. I will not. I believe in the long term potential offered by mutual fund investing. Index Funds are a great option and I will be looking even now for the next potential headline making set of index funds in which to invest my cash. I hope you take the plunge as well.
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HH - Mutual funds can be bought for as little as $25 per month. If you do not have any exposure in this area you really should do some investigation. Growing a retirement nest egg is much harder without them.
Try making sense of it when you are better acquainted with the UK nomenclature. Try Unit Trusts, Investment Trusts, Cumulative, Redeemable, Shares etc Then you have Stocks in the UK which are Government Bonds not Ordinary Stock. I give up sometimes - but it is fun translating.
humagaia - I cannot even begin to imagine trying to grasp another country's terms as it has taken a few decades to grasp the ones in play in the United States.
Definitely informative. Thanks it was helpful.
chris - When you are collecting your dividends I hope you will think of me and this article! Thanks for reading and commenting.
Hello, hello, 21 months ago
Sorry but way above my head and unaffordable.