The advantages of Index Investing
There are many financial instruments available for investors who wish to create profits in the stock market. Index investing is among the vehicles that feature a amount of attractive features. Here are a few of the advantages of index investing.
Simple and Easy
You will find literally tens and thousands of companies listed in the stock exchange. It is quite hard for any investor to choose the right stock and earn good profits index investing. It requires plenty of research and diligent homework to recognize the best stock. This is actually a difficult exercise for some investors, specifically for newcomers to the stock market.
Index investing offers a much easier way to buy stocks. It provides the ability to choose diversified portfolio which will guarantee average returns. In place of aiming for above-average returns and then failing, investors can safely use index investing to ensure that their returns are guaranteed to be in line with the general market performance.
Better Performance
It is estimated that index funds outperform actively managed funds by 80%. Put simply, buying an index fund would ensure a 4 in 5 chance that the investment would perform well than other types of investments. On one other hand, money invested in actively managed funds may possibly perform badly 80% of the time. The investor only has 1 in 5 chances of seeing profits.
Lower Costs
Actively managed funds incur plenty of overheads which makes them underperform all the time. You will find fund managers, analysts, traders and a number of other experts who will eat into the profits generated by actively managed funds. On one other hand, such overheads are almost non-existent within an index fund. There is hardly any costs incurred on index funds as they only follow the marketplace average. Therefore, index investing will make much better sense to the average investor.
Low Maintenance
Many people wish to invest for the long-term. Especially those who wish to truly save due to their retirement want to invest and then ignore their money until retirement time. Index investing offers this facility as it requires minimal maintenance. By simply following the marketplace average, index funds would accumulate profits over a 20 to 30 year period. Index funds are therefore a great means for long-term investing, specifically for retirement.
Index investing provides a number of benefits to investors. It can also be suited to a wide selection of investors including those people who are a new comer to the stock market.
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