| Index funds | | | | Why are index funds more efficient? Index funds |
| Warren Buffet, the worlds greatest investor, said | | | | have a buy and hold strategy. In fact, most have |
| it best, "I would not invest in mutual funds, but if I | | | | short term trading fees to discourage people |
| did, I would choose an index fund. For most small | | | | getting in and out quickly. In contrast, most |
| investors who don't have time to research | | | | mutual funds do a lot of short term trading to try |
| individual companies, cheap index funds are the | | | | and beat the market. It is difficult for fund |
| best way to invest in the stock market." | | | | managers because the market is pretty efficient. |
| Why Index Funds | | | | Through frequent trading they incur, trading fees, |
| For starters, over 80% of mutual funds do not | | | | capitals gains taxes, and need more people |
| beat the market. This means, if you have an | | | | (overhead). The bottom line is you will pay more |
| index fund, you will automatically be in the top | | | | fees for this type of fund. Fees are often |
| 20% of mutual fund investors. Many fund | | | | downplayed by brokers when, in fact, they make |
| companies have hundreds of funds. By chance, | | | | a huge difference in your portfolio returns. |
| some of their funds are bound to beat the | | | | Where to buy an index fund? |
| market. When they do so, the mutual fund | | | | You can go to a full service broker like Merrill |
| companies advertise them like crazy. Then, | | | | Lynch or Smith Barney, but don't expect service |
| investors pump a lot of money into the fund, | | | | unless you are truly wealthy. If you're an average |
| when usually it was just an anomaly. There have | | | | person, you're best bet is with a discount broker. |
| been funds that have outperformed the market | | | | Vanguard has the lowest fees in the industry. |
| over time, but not even a brilliant Harvard | | | | Their index 500 fund is legendary. Other options |
| portfolio manager can pick them. Anomalies aren't | | | | are Fidelity Investments and Charles Schwaab. |
| likely to continue so most people get a below | | | | Both are more expensive than Vanguard and |
| market return the next year. | | | | offer better service. Fidelity and Schwaab fees, |
| Index funds help you join the market and get the | | | | though higher than Vanguard, are reasonable. |
| return the market is giving. The most popular | | | | How Do I Work With A Broker? |
| index fund is the S&P 500. This fund, which is | | | | Have you opened a bank account? It's the same |
| carried by many brokers, follows 500 of the top | | | | thing. The application is a little longer due to all the |
| companies in the United States. Since most people | | | | securities laws, but it's the same thing. If you |
| can not afford to buy into 500 stocks the fund | | | | don't have enough money for one company, look |
| helps them become part of a market they would | | | | elsewhere. The good thing about discount brokers |
| otherwise not be able to join. | | | | is that they will answer the phone. If you aren't |
| How are the S&P five hundred stocks | | | | wealthy, you will get the best service from a |
| picked? Economists, behind closed doors, pick the | | | | discount broker. Call them with any questions |
| five hundred companies. They do a good job of | | | | because they will be happy to help you. If you |
| determining what large companies make up the | | | | aren't wealthy and getting great service from a |
| economy as a whole. | | | | full service broker, run like hell. You won't regret it. |