The Case for Index Funds

In the article If You Can't Beat 'Em, Join 'Em - The Case for Investing in Index Funds, I pointed out that, "According to the folks at the Motley Fool, only ten of the ten thousand actively managed mutual funds available managed to beat the S&P 500 consistently over the course of the past ten years. History tells us that very few, if any, of these funds will manage the same feat in the decade to come. The lesson is simple; unless you are convinced you are capable of selecting the 0.001% of mutual funds that are going to beat the broad market, you would best be served by investing in the market itself. How? By beginning a dollar cost averaging plan into low-cost index funds, you can be absolutely certain you will out perform a majority of managed mutual funds on a long-term basis."

For the average investor who has a decade or longer to invest and wants to regularly put aside money to compound to their benefit, index funds can be a great choice. They combine almost unfathomably low turnover rates with rock bottom expense ratios and widespread diversification; in other words, you really can have your cake and eat it, too.

Interested? Check out Vanguard and Fidelity as they are the undisputed leaders in low-cost index funds. Typically, look for an S&P 500 fund or other major index such as the Wilshire 5000 or the Dow Jones Industrial Average.

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