Why Passive Investing Is The Smartest Way To Grow Your Wealth For Retirement

An index fund is a mutual fund that’s set up to track an existing market index. The fund simply buys all the stock in that index. An index in reality means a part of the stock market. Example indexes include the S&P 500 or the Russell 3000. Index funds will contain a wide range of bigger and well-known companies alongside smaller ones.

Why choose an index fund?

Because the plan is pre-mapped there’s no active managing, meaning fees are lower.

It can be a good part of a retirement portfolio because some index funds are perceived to be a safer option, with potentially lower returns but also lower risks. It’s a long term strategy – rather than looking at the 1 or 2 year return which could just be 1% or 2%, you need to look at 5 years or more where the returns are bigger, say around 10% or even more. It’s also a good option for people who want to invest at a low cost but don’t have the time to choose individual stocks themselves.

How to find the best-performing index funds

In order to find the best performing funds, you need to educate yourself. Research online and read lots of articles. Subscribe to online financial publications so you understand terms and trends. While individual advice may vary, index funds that offer high quality for a relatively low price are a safer bet. If you’re more of a risk taker, then for 2016 small cap stocks are set to be the more volatile, but also the more profitable type to choose.

Remember, no investments are risk-free so be sure to invest within your means. Consulting a professional financial planner is a good idea if you want guidance.