Index Investing

An index fund or index tracker is a collective investment scheme (usually a mutual fund or exchange-traded fund) that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held constant, regardless of market conditions. When you buy shares in an index fund rather than purchasing individual stocks or buying shares in a mutual fund, you don’t have to do much research because you are electing to participate in the gains earned by all the companies whose shares are in the index rather than to try to pick the winners. Time is precious to today’s middle-class worker. An investing approach that saves us time by simplifying the process by which we make investment decisions thereby provides us with a significant benefit.

Index investing is not gimmicky. There are no charts you have to study to be a successful index investor, no patterns you need to uncover. You hand over your money and you obtain a stake in the success of all businesses covered in the index. Index investing is a no-muss/no-fuss approach. It’s a common-sense approach. It’s a get-rich-slow approach. All of that appeals to me. There are very effective stock tips that will minimize your risk as well as help you make good profit from your investment.

Indexers are smart investors, as a rule. Perhaps some indexers are too smart. Indexers have enjoyed a nice long ride of success in the U.S. markets, and because their investing approach is one backed by a good number of academic studies, indexers tend to attribute their success to their particular abilities to understand things that those following other investment strategies do not. It could be that index investing has just enjoyed a good run and that the steadfastness of followers of this approach is going to be put to severe tests in years to come.