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10 tips for creating wealth in the stock market
10 tips for creating wealth from the stock market: 1. Do not spread your money too thin. My friend has a little over $200,000 invested in the stock market through 27 different Mutual funds. In my opinion, 27 Mutual funds is 27 too many collecting...

Buy and Hold Investment Strategy
"Buy and hold" is one of the most heralded investment strategies promoted today. "Buy and hold" is also one of the few investment methods where you are guaranteed to lose money 2 out of every 5 years...so why do it? Before expanding on the...

ONLINE BANKING – ARE YOU READY FOR IT?
Are you ready for online banking? Or a better question – are the banks ready for you? Online banking is much, much more than simply punching in your codes at the nearest ATM, and the breadth of services available to you are growing fast. In...

Rebuild Your Investment Portfolio Today
Its time to change your thinking about this beaten-up stock market and get excited about the tremendous long-term potential. If you find the current market makes you feel like sticking your head in the sand and you long for the "good old days" of...

Services For Retirement Planning
Retirement Planning Services Financial advice is literally everywhere. Everybody has an opinion to give it seems, friends, family, neighbors and even strangers. A lot more people therefore are going to financial planners. They consult these...

 
Index Funds - Are they right for you?

Index Funds - Are they right for you?
by Gabriel Nijmeh

Indexing is an investment approach that seeks to match the
investment returns of a stock or bond index. An investment
manager tries to duplicate the target index by holding all the
securities in the index. This is what is called a passive
management approach which emphasizes broad diversification and
low portfolio turnover.

There are a variety of indexes to suit each investment style. The
largest and well known index is the S&P 500. This index is
dominated by the largest blue chip companies and accounts for
close to 75% of the U.S. stock market value. Other indexes
include the Nasdaq, Wilshire 5000 Total Market Index, S&P MidCap
400, Morgan Stanley Capital International Europe, Australasia,
Far East (MSCUI EAFE) and various bond indexes.

Since 1926, the stock market has an average rate of return of
11.3%. Investors have earned more or less depending on the type
of investments and risks taken. It is very important to note that
this return is before costs have been factored. Therefore, those
investing in actively managed mutual funds may have a net return
lower due to these costs and thus will earn significantly less
than the market average.

These costs include:

- Management expense ratio (including advisory fees, distribution
charges and operating expenses)

- Transaction costs (brokerage and other trading costs)

Index fund expense ratios are typically 1 percent and usually
even less, compared with 1.5 to 3 percent for actively managed
funds. Fund expenses and transaction costs for a typical mutual
fund can take a big bite out of your net investment returns. Add
sales commissions to your purchases and even more of your returns
are swallowed. Typically, index funds can be purchased on a no-
load basis thus saving you sales charges.

Of course, there is always a caveat... during periods of market
decline, index funds can be expected to suffer somewhat larger
declines over actively managed funds. A fund manager can make
adjustments in anticipation of market declines by selling stocks
and also has the option of holding a cash reserve. This is not
something that occurs within an index fund because you are fully
invested in the market and potentially corrective actions are not
taken. Accordingly they may be regarded as a riskier option for
some investors during market declines.

It can also be argued that when you invest in an actively


managed
mutual fund, you are paying a professional to research and pick
winning stocks. You are not paying them 2 or 3 percent a year to
park your holdings in cash. If that were the case, you would be
better off putting your money in your savings account. It really
depends on market conditions and the fund's investment philosophy
and how it matches with your investment goals.

Another common thought is why shoot for an average return when
you can try and beat the market. Well, it is very difficult even
for seasoned money managers to consistently beat the index year
over year.

Taxes are another aspect of investing that needs to be considered
carefully. Every time an active fund manager sells a profitable
stock, a taxable capital gain is triggered. Anytime some of an
investment is taxed away, the magic of compounding is
compromised. Index funds on the other hand are considered tax
efficient investments because very few stocks are bought and sold
and therefore few capital gains are distributed to investors. You
choose when to sell your investments and therefore have a bit
more control over the tax consequences. Index investing was once
only available to institutional investors who take tax deferral
seriously.

Indexing is a strategy that can be applied in many different
ways. It is an efficient and low cost way to investment across
various markets and asset classes. You can build a core holding
of index funds and add a well managed mutual fund that enhances
your portfolio's return.

What appeals to me about indexing is that I can have a broad
basket of stocks that moves lockstep with the market so at the
very least I am guaranteed a market return. In addition, I can
purchase individual stocks or other mutual funds that will add
value and enhance my overall rate of return.

Do index funds fit in your portfolio? This is something you need
to determine based on your investment goals and philosophy. Over
the long term index funds should provide competitive returns
relative to actively managed mutual funds while keeping your
costs down.

About the Author

Gabriel is the editor and webmaster of The Money Advisor -
http://www.the-money-advisor.com. He believes that everyone is
capable of controlling their financial destiny with the right
combination of rich thinking and smart action. The Money
Advisor, a knowledge network of people, articles, tips, e-books
and ideas about making money, saving money and building wealth!

 

Morningstar: Stocks, Mutual Funds, and Investing
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Finance - Stocks-Mutual-Funds Ezine Articles
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ezinearticles.com
 
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USATODAY.com: Stocks/Mutual Funds · Original XML Source Money Classifieds - Stocks/Mutual Funds Copyright 2011, USATODAY.com, USA TODAY ...
www.newsisfree.com
 
Online Giving - Campus Crusade for Christ International
Credit Card by Mail or Phone. Other Ways to Give. Non-Cash Gifts: Stocks, Mutual Funds, & Property Gifts · Planned Giving: Wills, Trusts & Annuities ...
https:
 
New way to watch stocks, mutual funds & 401k at office. Free ...
Excel workbook for stocks and mutual funds. Download quotes directly from Internet.
www.esquotes.com
 
News From The Associated Press
Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Comments and questions.
customwire.ap.org
 
Google Finance Launches : Track Stocks, Mutual Funds & Companies
Google Finance offers an easier way to search for stocks, mutual funds, public and private companies. Further, Google Finance also offers a broad range of ...
www.quickonlinetips.com
 
Yahoo! Answers - Individual stocks, mutual funds, and ETFs?
2 answers - what are the difference between individual stocks , mutual funds and ETFs? which one is better for investment ?
answers.yahoo.com
 
Petition Spot :: View Forum - Investing: Stocks, Mutual Funds
Investing: Stocks, Mutual Funds Moderators: None Users browsing this forum: None, Goto page. Post new topic · Petition Spot Forum Index->Investing: Stocks, ...
www.petitionspot.com
 
Donate Stocks/Mutual Funds/Bonds: Beth Israel Deaconess Medical ...
Subordinate Link Selected Link (Level 3): Donate Stocks/Mutual Funds/Bonds · Subordinate Link Donate by Telephone · Subordinate Link Employee Giving ...
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Investment capsule: - stocks, mutual funds and fixed income Money ...
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Stocks/Mutual Funds - Gospel for Asia
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Articles for Reprint - Stocks-Mutual-Funds
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  • 10 tips for creating wealth in the stock market

  • 10 tips fro creating wealth from the stock market

  • 3 sure ways to trump your investing fears

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