Index Fund Mutual Funds Stock Market Investing

Index funds are the simple way to invest in stocks through mutual funds. KISS – keep it simple stupid, should be the motto of every index fund investor.

There’s no need to get complicated, especially with index funds. And there’s no reason to pay a large chunk of your gains because of excessive fees. Mutual funds charge fees to pay their managers and make profits. Well, with an index fund, you’re not paying a manager to do anything, right? All they need to do is buy the stocks in the appropriate index. Right, so never pay more than half a percentage point of the money you have in the fund in fees. Good inexpensive funds are offered by Vanguard (the cheapest), Fidelity and T. Rowe Price.

Index funds don’t try to guess where the markets are headed, they try to follow the market.

Never ever buy a load fund, especially for an index fund. A load is money that a mutual fund company takes up-front out of your initial investment. There are too many good no-load funds out there, so if you see a load mentioned, throw the prospectus for that fund away.

Index funds track the stock market, or large portions of it. There are index funds focused on more narrow portions of the market or on one country, but stay away from those. We’re talking about simplicity. Forget Japan funds or Eastern Mediterranean small cap funds. Instead, track broad market indexes, like the Standard & Poors 500 of U.S. large cap stocks or the 5,000 stocks, including small and micro-caps available in a total market index fund.

To invest internationally, go with a fund that tracks broad portions of the international market, the Financial Times/CNBC Global 300.

Study after study shows that in the long run, managed mutual funds that try to beat the market rarely do so, index funds do just as well over the long term with less risk.

Index funds tracking one country’s market or something like emerging third world markets or international small cap stocks are much more risky and not simple. They fly high and sink to depths rarely seen on the overall market. If you must invest in niche markets, have some antacids around unless you have a very strong stomach.

Here are the rules:

Keep it simple, two or three index funds are enough. Buy a fund that tracks broad markets, not niche markets.

Buy from a reputable, large mutual fund company.

Keep your  costs low, and never, ever pay more than .50 percent for an index fund, better yet, keep it under .30.

Keep it simple, don’t worry too much, sleep well. That’s what index funds are all about.