As you embark on what hopefully will be a lifetime of investing, you’re likely to experience both anxiety and excitement. Perhaps your heart is pedal to the metal (I need to invest already!) but your head’s pumping the brakes (I don’t want to lose that money!).
Instead of fretting about what to do, consider index funds — which can be either of the mutual fund or exchange-traded fund (ETF) variety. Index funds (for example, those tracking the Standard & Poor’s 500 Index) are a good entry point for beginner investors because they offer a simple way to gain exposure to the market without the need to buy all the stocks within the index.
Index funds are easy to buy, they carry low management fees (what’s known as expense ratios), and their returns are less volatile because they track the performance of an index. Finally, these assets offer diversification, which is key to long-term success in the market. Owning a variety of assets decreases your portfolio’s risk, ensuring you don’t get burned by any one investment.
You’ll need an account to get started, either with an online broker or a robo-advisor. The difference comes down to personal preference. If you prefer selecting investments, an online broker is your best bet. If a hands-off approach is more appealing, go with a robo-advisor, where index funds are the name of the game.
A quick explainer on robo-advisors: These providers offer automated investing advice using computer algorithms to build and manage customers’ investment portfolios. Robo-advisors will recommend a portfolio that’s typically constructed of low-cost ETFs and index funds. If you opt for a robo-advisor, you’ll inherently be investing in index funds, even if the algorithm is doing the selection on your behalf.
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