A stock index fund is becoming increasingly popular as investors seek investments that are a little easier to manage.

An index fund is designed to match the investment results of a specific market index. That said, it can consist of either stocks or bonds in its portfolio. The difference when comparing index funds is the tactics that they employ to achieve the desired returns.

Just like any other product in the market, an index fund has its pros and cons. If you still think that it’s a great tool that you can employ, then, by all means, go for an index fund because they are one of the simplest types of investments you can make.

Pros

Less risk

The biggest advantage to choose an index fund over individual stocks is that they have a relatively low risk that is designed just for long-term growth. Intrinsically, they are already diversified enough with stakes in different sectors within an index. This really protects the investor against any big losses.

Low fees

Index funds have lower fees than non-index funds. This is a simple comparison. This is crucial because if you have high fees your returns must be greater than the fees otherwise you will walk away with the same money you started.

The non-index funds have higher fees because they are actively managed and make more transactions. These fees can add up if you do small transactions multiple times.

Avoid market swings

An index fund is designed to be long-term and removes short-term volatility. The short-term volatility is often viewed as a temporary correction in the market, which will likely recover as long as the markets balance out over the long-term.

This means that passive investors can automate their monthly investments and are more likely to make long-term profits.

Require less management

Index funds are ideal for those who don’t have much experience with the financial markets, or have limited time to keep up with financial news. It’s not because you are buying just one stock. This eliminates the possibility of bad news affecting your portfolio.

Second, you don’t need to be able to time the market. You just need to give the money each month and the dollar-cost average into the index fund you choose and then leave it. You will be taken care of by the market and compound interest.

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