By Omri Hurwitz
With all the recent young ‘Reddit” investors making headlines and pushing other young investors to bet on stocks like AMC (NYSE: AMC), in order to combat Wall Street Short sellers, it is essential to mention, especially to the same young inexperienced investors, that there is a safer long term investing plan.
That plan includes long-term investing in index funds like S&P 500 Index or the Nasdaq Index, as an example. The idea of investing in index funds is that the Index Funds track the overall market, so it is a more balanced way to invest in the stock market instead of investing in particular firms and companies.
An index fund’s value rises or falls depending on the performance of its associated market segment (e.g., S&P 500). Index Funds have low expenses since they do not require expensive security analysis or stock picking. Index funds usually outperform most mutual funds over time because of their low costs, making them attractive to individual investors and financial professionals alike.
Investors can buy index funds through their brokerages or online trading sites. Index funds are created by professional investors and follow a specific index like S&P 500 Index or Nasdaq Index. These Indexes are built up of thousands of stocks that meet exact company size and risk level criteria.
What young investors need to know is that the sooner they ‘buy into the market,’ the more money they’ll potentially have in the future. The idea is to consistently invest money into the index funds without letting the movements of the market trigger reactions in your behavior. It is advised to decide in advance the amount of money that you want to invest each month, or each second month, in order to play the long-term game and be persistent with your index fund investing approach.
In the long run, index funds like the S&P 500 have consistently outperformed many private investors and hedge funds. Warren Buffet has also favored index funds as one of the best ways to make money in the stock market.
The 1st Index fund bought by Warren Buffet was S&P 500 Index. This Index Fund grew from $18 a share in 1956 when he bought it until now it’s over $200 a share (which is about an 11% increase per year).
To start investing in index funds, young investors can start small, for example, $100 a month or every other month, and then increase this amount as their income increases. Index funds can also be left alone to grow in a savings account or an Index mutual fund account (or Index ETF – exchange-traded fund).
So, whether you’re investing for the first time or looking to diversify your portfolio, index funds are a great tool when building an investment strategy. If you’re interested in exploring index funds further, there is plenty of more articles and guides online.
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