Investing for the Future with Index Mutual Funds

It has never been more important to save for the future than it is today. While the traditional defined benefit plan used to be a standard part of the American landscape, for good or bad that is no longer the case, and workers today are increasingly being called upon to take an active role in their own retirement plans. While there are many ways to save and invest for a secure retirement, a quality index mutual fund is one of the best choices.

There are many advantages to a quality index mutual fund, including lower cost, greater tax advantages and historically excellent performance. While there will always be superstar funds that post great returns for a single year, very few of those managed funds have been able to repeat that performance year after year. An index mutual fund will eliminate the danger of underperformance and ensure that you get performance equal to the market as a whole.

There are many different kinds of index mutual funds, from well diversified, market wide mutual funds to narrower indexes that are more suitable for risk tolerant and experienced investors. When it comes to the most popular and most widely diversified index mutual funds, the most commonly owned are:

  • Standard and Poors 500 Fund
  • Total Stock Market Index Fund
  • Large Cap Stock Index Fund
  • Small Cap Stock Index Fund
  • Growth Index Fund

There are of course many different mutual fund companies who offer these and similar mutual funds, and it is important to shop around carefully for the best funds at the lowest cost. The annual expense ratios on these index funds tend to be much lower than on managed funds, so it is important to choose an index fund with as low an expense ratio as you can find. After all, with an index fund there is no fund manager to pay, and there is no need to pass those employment costs on to shareholders.
It is also important to look at any other expenses to which you might be subject. The prospectus for the mutual fund will contain complete information regarding the annual expenses, fees and charges that may be associated with the fund, and it is important to read it carefully before you invest. While index mutual funds can be a great way to invest, it is important to choose a mutual fund company carefully to make sure you get the best deal possible.

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