Which index fund should i buy

Such events are called black swans because they appear so rarely, but they appear often enough that they have to be accounted for when looking into the future.

The terrorist attacks on Sept. Other examples of black swan events are the global financial crisis of and the Covid pandemic that erupted worldwide in March You also have to consider the market cycles that can occur within a year span. Research from Invesco shows that from the period November to December - a span of more than 50 years - the average length of a bull market was 1, days or approximately 58 months, while the average bear market lasted days or The most recent year span, from to , not only included three bull markets and three bear markets, but it also experienced a number of major black swans with the "tech wreck" and terrorist attacks in , the financial crisis in , and the COVID pandemic of The total return over this period was Taking a different year span that also included three bull markets but only one bear market, the outcome is quite different.

In the period from to , the market suffered a steep crash in October , followed by another severe crash in to , but it still managed to return an average of Likewise, the market roared back following the financial crisis to the longest bull run on record. Yes, because buying the Index is very well-diversified by sector, which means it includes stocks in all the major areas such as technology, healthcare, financials, consumer discretionary, and so on.

Unless there is a major bear market, declines in some sectors may be offset by gains in other sectors. In comparison, buying a single stock exposes you to all the risks that are unique to that company, known as unsystematic risk or specific risk. Mutual Fund Essentials. Dividend Stocks. Mutual Funds. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data.

We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Remember, those investment costs, even if minimal, affect results, as do taxes. Is the index fund you want too expensive? Invest in an exchange-traded fund that tracks the index.

Instead of having to buy the main-course mutual fund, you purchase just a slice of the fund. Here are some pros and cons of investing in ETFs versus mutual funds. Want to buy stocks instead? Learn how to trade stocks with these step-by-step instructions. New to investing? This guide to the best online stock brokers for beginning investors will help.

How much will you need to retire? Use our retirement calculator t o track your progress. However, the best index funds for you will depend on your personal details, such as your risk level and your existing portfolio makeup. As with all investments, it is possible to lose money in an index fund, but if you invest in an index fund and hold it over the long-term, it is much more likely that your investment will increase in value over time. You may then be able to sell that investment for a profit.

Now is always a better time to invest than later, because of compound interest. Check out our investment calculator to explore how an investment in an index fund or other security could grow over time. Steps 1. Pick which index. Select which index fund. Decide where to buy. Show More. Learn More. Promotion None no promotion available at this time.

The main costs to consider:. Index fund. Minimum investment. No minimum. Other things to keep in mind. Frequently asked questions What is the best index fund to invest in? Can you lose money in an index fund? Is now a good time to buy index funds? On a similar note Dive even deeper in Investing. Explore Investing. Get more smart money moves — straight to your inbox. Choose the right fund for your index Once you've chosen an index, you can generally find at least one index fund that tracks it.

Buy index fund shares To buy shares in your chosen index fund, you can typically open an account directly with the mutual fund company that offers the fund. Image source: Getty Images. Why invest in index funds? Investors find index funds especially useful for many reasons: Minimize your time spent researching individual stocks.

Instead, you can rely on the fund's portfolio manager to invest in an index that already includes stocks you want to invest in. You can invest with less risk. Most indexes include dozens or even hundreds of stocks and other investments, and the diversification leaves you less likely to suffer big losses if something bad happens to one or two companies in the index. Index funds are available for a wide variety of investments. You can buy stock index funds and bond index funds, which cover the two big parts of most people's investment strategies.

But you can also buy more focused index funds that drill down into certain parts of the financial markets. It's a lot less expensive. Index funds are usually far less costly than alternatives like actively managed funds. That's because an index fund manager just has to buy the stocks or other investments in an index -- you don't have to pay them to try to come up with stock picks of their own.

You'll pay less in taxes. Index funds are quite tax-efficient compared with many other investments. For instance, index funds don't have to do as much buying and selling of their holdings as actively managed funds, and so index funds avoid generating capital gains that can add to your tax bill. It's a lot easier to stick with your investing plan. When you use index funds, you can automatically invest month after month and ignore short-term ups and downs, confident that you'll share in the long-term growth of the market.

Why not invest in index funds? Some of the downsides of investing in index funds include the following: You'll never beat the market. Index funds are designed solely to match the market's performance, so if you want to prove your mettle as a superior investor, index funds won't give you that chance.

You don't have any loss protection. Index funds track their markets in good times and bad, and when the market plunges, your index fund will plunge as well. You won't always own stocks you like. Depending on the index you choose, you can end up owning some stocks you'd rather not own, while missing out on others you'd prefer.

Image source: The Motley Fool. Stocks Owning shares of individual companies can be especially rewarding, but you'll need to do some research. Exchange Traded Funds ETFs are collections of stocks that trade just like a stock, bought and sold throughout the day with fluctuating prices. Mutual Funds Mutual funds are also collections of stocks, and they can be actively or passively managed. Retirement Planning Properly planning for retirement could be the most important investment decision of your life.

Let index funds help you get rich Index funds offer investors of all skill levels a simple, successful way to invest. How do index funds work?