Index funds are similar to mutual funds but index fund
have clearly defined rules of ownership. The rules of ownership
clearly define the risk level allowed in each fund. There’s
no style drifting here which will increase the level of
risk and take your investments down a path you had no intention
of following. Each index fund investor is matched to the
appropriate index fund based on his or her individual Risk
Capacity.
Index Funds Advantages
Moving your money out of actively managed retail stock
brokerage account will save you a boatload of money in the
form of reduced taxes because short-term capital gains are
far more costly than long-term gains.
Opting for a passive investing strategy of Index Fund Investing
will save you a ton in fees. Annual Index Fund expenses
are up to 66% less that actively managed funds.
The appropriate Index Fund leads to more success for the
investor than the majority of actively managed funds after
you factor in the risks of style drift, when fund managers
purchase investments that are not in keeping with the parameter
laid out in the prospectus. Most investors are not even
aware that the funds they are invested in may bear no resemblance
to the strategy defined by the fund manager.
Managed funds impose higher trading costs and taxes to
go along with the greater risk and typical underperformance
compared to many Index Funds.
Active Trading is nothing short of gambling. It is a bet
with your money that is placed on nothing more than random
chance. This may be fun at the casinos, but it should never
be a part of your investing strategy. Click here to learn
more about how Index Funds can help you meet your long-term
investing goals.
