Index Funds and Mutual Funds
Index and Mutual Funds certainly have their similarities. Both offer a way to diversify your portfolio and both are usually invested into a plethora of stocks that all work towards a common investment goal or strategy. There are, however, some distinct differences between the two, differences that any investor should be aware of when managing their retirement portfolio.
Index Funds
Securities that track the Dow Jones Industrial Average and S&P 500 indexes, securities that track how businesses crucial to the US economy are performing, are what Index Funds use to make their investment strategies. These indexes are also what is used by the media to determine how the broader market and economy is doing. [1]
Brokers will offer Index Funds that allow an investor to buy into the stocks of many companies that correlate with a specific index. Multiple Index Funds can all track the same index but behave differently in which stocks they purchase and at what amounts. Some funds may filter out entire industries or stocks with certain characteristics in order to meet a specific financial outcome.
Index funds track the market more than they “beat” the market.
Mutual Funds
Mutual Funds can offer more diversification to a portfolio than an Index Fund. Often invested in a changing list of securities, the investment strategies are determined by a Mutual Fund Investment Manager. Index funds, however, often offer less expensive fees.
A Mutual Fund’s goal, unlike an Index Fund, is to “beat” the market. They are actively managed in a way that is designed to meet a set investment goal, whereas Index Funds ebb and flow with the market, passively managed and only changing when the index it’s invested in does. [2]
On average, Index Funds outperform mutual funds over many years, especially when fees are factored in. Those fees, however, can be worth it when certain investment risks are covered and benefits from an increasingly diversified portfolio are incurred.
Optimizing your retirement could include Index Funds, Mutual Funds, or a number of strategies that all work together to help maximize your investments and work to keep your retirement secure. To schedule a complimentary financial review with Moore’s Wealth Management, click here or call our office at 770-535-5000, where a staff member is awaiting your call Monday through Friday, 9 AM to 5 PM.
All information contained herein is derived from sources deemed to be reliable, but cannot be guaranteed. This material is provided as a courtesy and for educational purposes only. This material is provided as a courtesy and for educational purposes only.
The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
Diversification does not assure a profit or protect against loss in a declining market.
Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.
Dow Jones Industrial Average (DJIA) is a price-weighted index of 30 actively traded blue-chip stocks. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.
Mutual funds are offered only by prospectus. Carefully consider the investment objectives, risks, charges, and expenses of mutual funds before investing. This and other information is contained in each fund’s prospectus, which can be obtained from your investment professional and should be read carefully before investing.
Steward Partners, its affiliates, and its Financial Advisors do not offer tax or legal advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.
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