Here’s what Anonymous Dad has learned about Index Funds:
- An Index Fund tracks the aggregate growth of all the companies contained within that Index
- The Index itself can rise or fall based on the sentiment of the stock market. That rise or fall is known technically as “volatility”.
- Volatility is not the same as risk. Over the long-haul, the risk of losing money in Index Funds is relatively small and outweighed by the benefit of capital growth.
- In business, there will always be winners and losers. By backing ALL the winners and ALL the losers, an Index Fund typically returns somewhere between 7% to 10% on average per year over, say, a 5 year period.
- The alternative to investing in an Index Fund are what’s known as stock-picking (usually bad) or day-trading (even worse).
With me? So far? Good.
But let’s be clear – we’ve only just scratched the surface. And, although things aren’t that difficult, you will need to get your own head around the subject of Index Funds.
Fortunately for all of us, there are people who have blazed this particular trail.
Specifically, one JL Collins.
When you’re ready, my young padawans, give JL Collins an hour of your time. You’ll be very glad you did: