Index Funds have these last years become one of the most popular ways for American people to invest.
And it is because index funds involve instant diversity and returns that typically beat actively managed accounts.
But there are couple of things to consider before going all in, in the index funds.
The first thing is a question you gotta ask yourself which is all about “Is the index fund doing its job?”.
In this one your index fund should for the most part mirror the performance of the underlying index.
This thing shows the index fund’s returns during several time periods. And also it compares it with the performance of the benchmark index.
Don’t start to loosing your mind if you see that the returns aren’t the same. because those investment costs, affect results, as the taxes do.
But the red flags comes if the fund’s performance lags the index by much more than the expense ratio.
And the second things and the last to keep in mind is the question of “Is the index fund you want too expensive?”.
Here you invest in an exchange-traded fund that tracks the index. And instead of sort of having to buy the main-course mutual fund, you purchase just a slice of the fund.