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Are index funds a good idea?
Answers
951 points
Grudun answered one year ago …
If you want a slightly above average return index funds are good investments in a bull market. Since most mutual funds don't perform as well as the indexes(generally you are better off with the broader ones like the S&P500) you will do better than most mutual funds. The catch is in a bear market by definition these funds are going down, and market timing is extremely difficult. But if you don't want/have the time to spend on investing(either finding the best mutual funds or the best individual stocks) it is normally your best bet.
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4075 points
EthanR answered one year ago …
Market index funds work very well in 401k or 403B plans. Sock it away every week and forget it. Even if the return isn't that great, the company is still matching up to 6% of your contribution, and that's called Freeeeeeeeee money. Also called 100% return.
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2183 points
ChaosNantuko answered one year ago …
At this very moment, i would say no. Its a bear market, and so buying an index fund means losing money without good reason.
Overall though, i'd say there a good idea. They just aren't the best idea. The best idea without getting too complicated would be to buy ETFs in sectors that are going up. This isn't as hard as it sounds; everyone knows that oil is currently going up... everyone knows that gold is currently going up... everyone knows that food prices seem to be going up. So just buy ETFs in those industries, throw in a 15% trailing stop, and you should do better then with a simple index fund.
just my 2 cents.
312 points
MoresbyChief answered one year ago …
If you're a very long-term investor, and you don't have the time or inclination to be constantly looking at and worrying about your portfolio, index trackers with very low expense ratios are a good idea. Warren Buffett I think says that the for the average investor these are the best bet - try to select stocks yourself and you put yourself up against people that do this for a living and eat, breathe and sleep the markets. I think most of us need to be a bit realistic when it comes down to it - though I am sure that many on this board make plenty of money 'beating the markets'.
I'm also generally against the concept of managed funds as the stats show that 80% of them underperform the market after their expenses. Furthermore, if you buy into funds that have outperformed then you tend to simply 'chase' performance and end up buying just as their period of outperformance is consequently averaged out by a period of underperformance.
I am currently using a basket of index trackers and low expense ETFs to dollar-cost average into the declining market with monthly investments. This suits my long-term approach and allows me to just let my investments without having to actively trade all the time.
