Index Funds Essay, Research Paper
With the growing popularity of index funds, one might be confused as whether to choose index funds or to use traditional money managers. If you are looking for an investment with low risk and a long term return that follows the market, then index funds is the choice for you. In fact, most private investors are better off investing in index funds. Try as one might, odds are against beating the market.
Why then should one trust the fluctuating market over someone whose job is to beat the market? A look at a few statistical numbers show that few money managers are able to beat the market. Overwhelmingly, index funds make more money for investors over a term of a few years. There are a few reasons for this phenomenon. First of all, index funds is low risk because of its broad range of stocks. The diversification of stocks balances off the risk of one company with another. Logically, this is much lower risk than investing in just one type of stock. There are two types of risks. One is the market risk, which is the risk that the entire market crashes. This risk is mostly unavoidable by both the index funds and money managers. Another is a risk involved with the successes and failures of one particular stock. With this risk, index funds are better buffered against the regression of one stock since its portfolio is diversified and balanced.
Some are not satisfied with just matching the market. Experts say though, that maybe the best that they can do. The market is so sophisticated that any information will be immediately reflected with the price of the stocks. Thus managers have little advantage unless they conduct insider’s trading.
The index funds are not only low risk; it is also low cost. Its cost advantage over money managers has several factors. One of them is that index funds do not need high managers’ fees. In fact, managers’ fees are as much as seven times what most big index funds charge to invest your money. An actively managed fund trades frequently, thus has capital gains much more often than index funds thus biting into the profits that the managed funds had made. Since index funds trade less, it incurs fewer taxable gains distribution. With index funds, it only adjusts the allocation of money, thus much less expensive. Aside from this, index funds needs little to no research and advertising.
All these advantages are not to say that index funds do not have its rough edges. Some say that index funds rode on the bull market in the past few years, but when the bear market rolls around, index funds will drop like flies. Yet, even when the market goes down, it is still better to invest money in index funds over managed funds simply because of the cost advantages. Even if managed funds are more profitable than index funds; capital gains taxes and manager’s commissions would eat up the gains.
There is a concern that is everyone buys index funds, stocks in the S&P 500 will be overpriced. In spite of the rising popularity of index funds, its impact is still negligible since it comprises only 9% of all equity mutual funds. The value of stock is determined by a particular company’s cash flow divided by the number of shares of stocks available. If values of some stocks are overvalued, the market will readjust the price accordingly, much like what has happened in the past week with the plunge of Internet stocks, after a Microsoft executive said he believes that technology stocks are overvalued.
Thus private investors are much better off with index funds instead of a money manager on a long-term basis. Logically, people’s age is inversely proportional to the amount of risk they want to take. With baby boomers going into retirement in the next century, the popularity of index funds will only rise not fall.
Другие работы по теме:
Romeo An Juliet Essay Research Paper hi
Romeo An Juliet Essay, Research Paper hi i need an essay about a character in romeo and juliet that demonsrtated maturity. in a well developed multi pagraph essay and say why you think the character’s maturity was greater than the other characters in the play.
Savings Essay Research Paper SAVINGSShop around for
Savings Essay, Research Paper SAVINGS: Shop around for a bank that offers you free checking and waives ATM fees if you maintain a low minimum monthly balance in your checking account or in a combination of accounts. This can save you hundreds of dollars a year.
Education Essay Research Paper One of the
Education Essay, Research Paper One of the greatest problems in American society today is a variation in the quality of education, dependent upon the wealth, or lack thereof, in particular areas. This problem is especially notorious in areas of destitution. Lower standards for the schools in these poorer neighborhoods are another step in the cycle of poverty.
Oh Really Essay Research Paper Oh Reallyyou
Oh Really? Essay, Research Paper Oh Really, you think i am a lark, the dogs they run and bark, but when i say to them, shut up shut up shut up, you say to be nice to them,
College Essay Essay Research Paper There
College Essay Essay, Research Paper There’s a lot of talking these days about what it will mean to live, work and prosper in the 21st century. In fact this century is being hailed as a kind of renaissance. Not the rebirth of classic art and culture, as in the 15th century, but a rebirth of what we understand to be knowledge, how to acquire it and how to use it productively.
Gideon V Wainwright Essay Research Paper Clarence
Gideon V. Wainwright Essay, Research Paper Clarence Earl Gideon was charged in a Florida state court with having broken and entered a poolroom with intent to commit a misdemeanor. Appearing in court without funds and without a lawyer, Gideon asked the Florida state court to appoint counsel for him, whereupon the following troubles took place.
Social Security 2 Essay Research Paper Social
Social Security 2 Essay, Research Paper Social security is very essential for most of today s older Americans. Since it was begun, it has been a sort of protection for retired workers, and for disabled workers. Social Security allows people to live independently and still have their dignity. There are about 150 million workers protected by Social security and more then 44 million people receive Social Security benefits.
Population Control In India Essay Research Paper
Phan, Christine Per. 6, 4/3/01 Essay India Essay In ways to limit the growth population the government of India has come up with a few intentions. India is changing and is one of the two countries with populations over one billion. The government will incorporate actions consisting of “Money given to those who limit number of children in families”. “The Children needs and funds with a great amount of responsibility”. “Benefits on tax given on limiting children.” These actions will expectantly motivate them to systemize the growth population to a steady pace.
The Drug War Essay Research Paper Everyday
The Drug War Essay, Research Paper Everyday someone is thrown in state prison for anywhere from 3 years to life for the “illegal” use of the drug known as marijuana. It has come down to it that thousands of pounds of marijuana are smuggled over the border of Mexico and into the United States. Regardless of the fight or struggle of people to insure the so said safety of our younger generations from the use of these drugs more and more comes into the Unites States.
Finance Essay Research Paper 1
Finance Essay, Research Paper Arithmetic mean Standard Deviation 1. Intermediate T-Bond2.155925937.08417535 2. T-bond 2.7418518512.7163729 3. EAFE Index7.4907407423.4421382
Proposal Mutual Fund Essay Research Paper The
Proposal Mutual Fund Essay, Research Paper The Company AIM Funds is one of the nation’s largest and most successful mutual fund companies. Over the years, such funds as AIM Weingarten Fund, AIM Constellation Fund, and AIM Value Fund have become household words for millions of investors. AIM funds are sold through financial advisors as a reflection of the company’s belief that investors can benefit significantly from having the advice and guidance of a professional who can create investment plans to meet the individual needs of their clients.
Mutual Funds Essay Research Paper MUTUAL FUNDSA
Mutual Funds Essay, Research Paper MUTUAL FUNDS A Mutual Fund is a company that combines, or pools, investors’ money and, generally, purchases stocks or bonds. Ideally, a fund’s size and resultant efficiency, combined with experienced management, provide advantages for investors that include diversification, expert stock and bond selection, low costs, and convenience. (Mutual, 2001).
Mutual Funds Essay Research Paper Mutual funds
Mutual Funds Essay, Research Paper Mutual funds are an easy, convenient way to invest, without having to worry about choosing individual stocks. A mutual fund can be defined as a single portfolio of stocks, bonds, and/or cash managed by an investment company on behalf of many investors. The investment company manages the fund, and sells shares in the fund to individual investors.
Investment
– Chasing Performance Essay, Research Paper A problem in mutual funds are individual investors being accused of chasing performance. Chasing performance is when an investor goes into the market sector that has been hot in the past. In taxable bond funds more than $32.6 billion dollares has been spilled out through October.
Money Laundering
–The Process And Its Affects Essay, Research Paper MONEY LAUNDERING THE PROCESS AND IT S AFFECTS Money laundering is a process that many people do not understand. In fact, when I chose money laundering for my report, I thought that I chose counterfeiting. Money laundering and counterfeiting is not the same.
Sun YatSen Essay Research Paper Sun YatSen
Sun Yat-Sen Essay, Research Paper Sun Yat-Sen helped the growth of Nationalism during the early 20th century. After experiencing and studying in Hawaii, he got a taste of what the western world was like. Sun wanted to help westernize China to keep up with the world s technology and economy. His goal was to nationalize China.
Education In England Essay Research Paper England
Education In England Essay, Research Paper England has one of the finest educational system in the world. All English children between ages 5-16 must attend school. About 90 percent of the students go to schools supported entirely or partly by public funds. The rest of the students attend private schools.
Research Paper On Index Vs Mutual Funds
Essay, Research Paper Thesis: There are good and bad aspects of both Index and Mutual Funds, however whichever one is better for any particular person depends on his/her situation and willingness to wait certain times, or pay certain fee s.
Taxable Bond Market Outperformed The U.S. Stock
Market Essay, Research Paper For the first time since 1990, the taxable bond market, as measured by the Lehman Brothers Aggregate Bond Index, appeared nearly certain to outperform the U.S. stock market, as measured by the S&P 500?. The former was up nearly 10% year to date through November, while the S&P 500 was down by approximately the same amount.
Cloning Aspects Essay Research Paper The legal
Cloning Aspects Essay, Research Paper The legal aspects of Human Cloning are quite simple and straight forward, and I will outline them for you in the next few minutes and explain to you what they
Art 2 Essay Research Paper Essay IndexCustom
Art 2 Essay, Research Paper Essay Index Custom Writing College Stuff Sumit an Essay Message Boards Links Link to Us E-mail Me Search Options | Click Here to search the Paper Store
School To Work Essay Research Paper The
School To Work Essay, Research Paper The School-to-Work Opportunities Act was signed into law in 1994 and is administered under the auspices of the U.S. Departments of Education and Labor. The Act provides funds to States and local communities to develop School-to-Work systems. School-to-Work is a method of attaining high academic standards through applied, contextual, and focused learning.
Child Porn Essay Research Paper Fiber Optics
Child Porn Essay, Research Paper Fiber Optics Research Paper Fiber optics is a branch of optics concerning the transmission of light by means of optical fibers, which are thin strands of glass or other optically transparent materials. Optical fibers can be used to guide light–which is electromagnetic radiation in a certain frequency range–in much the same way that metal wave guides or coaxial cables can be used to guide lower-frequency electromagnetic radiation.
An Excerpt From Joseph Freeman
’s AN AMERICAN TESTAMENT Essay, Research Paper from An American Testament by novelist and apparatchik Joseph Freeman (1936) Reconciliation to the city is only a prelude to our transformation. The conflict of
Indexing Essay Research Paper Active and Passive
Indexing Essay, Research Paper Active and Passive Indexing The first index fund began in 1971, with $6 million funded by Samsonite, the luggage-maker. Since then, there have been many arguments of whether an active index fund or a passive index fund offers better long-term results for investors.