On the market, there are a lot of mutual funds and ETFs. But only a few do as well or better than the S&P 500. It is well known that the S&P 500 does well in the long run. But how can we make money from these good results? We can buy shares in an index fund.
Index funds try to make investments that match the total return of a certain market index (for example s&p 500). When you buy index funds, there's a chance that your investment will do about the same as the index.
As we can see, we get good results even when we do nothing. It's one of the best things about investing in index funds.
This is a better way to invest for the long term. It means you have to put your money in index funds for at least 5 years. Most people don't have enough money to make a big investment all at once. But every month, we can invest a small amount of money.
We looked at how well regular investments in three indexes did over a 5-year period (S&P500, S&P Mid Caps 400, S&P Small Caps 600). Tests have shown that investing small amounts of money every month brings good results. 80 percent of the time, statistics show that if you invest in the S&P 500, you will get back between 26% and 28.50% of what you put in.
We should keep in mind that investing in indexes is not a risk-free way to make money. In our testing, there are results when you lose. The worst outcome is losing about 33% of what you put into the S&P 500 in the beginning.
Diversifying your investments is the best way to lower risk. Investing in two or three different indexes can cut risk by a lot. Investing in indexes with different types of assets (like a bond index and a stock index) or different classes of assets gives the best results (small caps, mid caps, big caps).
Here: http://fplab.com/node/116 you can find the full version of this article with all of our test results.
