Choosing the Best Index Mutual Funds

There is a lot of talk about market indexes these days. Turn on any financial news network and the latest valuation of the major markets are either on the screen or coming up shortly. Political careers can be made or broken by the rise and fall of these averages. A high number means things are going well; meanwhile, a lower than expected average can lead to increased volatility and a slide in consumer confidence. Because of the transparency of market index averages, investors find mutual funds attractive. Retirement investors are especially interested in lower-risk investments like mutual funds. Yet, before getting involved in these final instruments, it is best to know what to look out for. Following are eight things wise investors must know in order to choose the best index mutual fund for them.

Frequently Asked Questions ( 8 )   Add a Question

  1. Are index mutual funds bullish or bearish?
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    People perceive of themselves as either bulls, who are aggressive investors, or bears, who are more conservative in nature. They often wonder just which style is best to look for in a mutual fund manager. Index mutual funds are fairly bearish because they track a certain number of specific stocks or bonds. Those who want something to hold on to for retirement, without the worry of having to update the portfolio on a regular basis, enjoy index funds. Aggressive bulls might want to look elsewhere.

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  2. Are emerging market funds safe?
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    There is a general fear of getting involved in emerging markets, those economies that are just starting to develop. The stories of retirement investors losing their entire savings are legend. Given the unpredictability of all financial markets, it is impossible to write off emerging markets from the start. Nevertheless, one should never forget that not every nation has the same level of regulatory oversight. The true value of a market could be less than it appears.

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  3. How diverse should a fund be?
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    These mutual funds are a broad portfolio of stocks or bonds that match the index being tracked. A lack of diversity is not a problem, in general, as broad fixed income mutual funds usually have a variety of components already mixed in.

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  4. What are the retirement date funds?
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    These funds are set up for retirement investors who want to earn a certain level of profitability by their retirement date. Managers adjust the portfolio to become more conservative as retirement draws near.

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  5. Which index is the most stable?
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    There is no real way to judge which index is the most stable. All have their benefits and weaknesses. The S&P 500 Index remains one of the most popular.

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  6. Is participating in an index fund costly?
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    Investors are increasingly concerned about the costs to have their funds managed. Because index funds do not require active management, fees are less than those of most other mutual funds.

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  7. Why do people refer to indexing as passive investing?
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    Index funds do not require managers to pick and choose stocks. Instead, they track the overall market index. Essentially, investors own all the stocks that comprise the particular index. Since active management is not required, people refer to indexing as passive investing.

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  8. Which type of index fund is best, bonds or stocks?
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    Which is best depends on the level of risk a investor can stand. Stock index valuation depends on the price per shares, times the number of shares available on the market. Thus, stocks can be particularly volatile instruments. Meanwhile, bonds are more stable but also less likely to reap in large returns. It is also important to remember that true bond valuation depends greatly on government debt, which is a problem in much of the world.

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