As I wrote in my last post, index funds are my favorite thing finance. I just love em! Almost as much as I love newfer puppies!!! Why do I have such amorous feelings about something that's neither cute, nor fuzzy? Well, for one, index funds don't slobber. And two, they're relatively cheap (unlike $2000-$3000 newf pups).
Index funds are, in general, super investments. They are low cost mutual funds that track an index. What does this mean? Well, let's take my favorite, since today's post is all about faves: MSCI EAFE. This is an index created over 30 years ago by Morgan Stanley that provides broad international stock exposure -- it tracks major stocks in Europe, Australia and the Southeast Asia. (Remember, the US comprises less than 50% of the world's equities, so getting international exposure is crucial. Think BMW, Diageo, Loreal, Barclays, etc.)
Instead of having to buy a few shares of stock for each of these companies in the index, which would be incredibly time consuming and expensive, you buy the index. This means you're diversified at a lower cost. So you don't have to worry about trading or following the individual equities -- HMW are way too busy for this, and you don't pay high fees. Vanguard, I-shares,and other investment companies offer index funds that track EFA, and because there isn't a big research fee given that they're just buying the index, the cost savings is passed on to you in the form of a lower management fee. Expect to pay somewhere around 0.25% total expense ratio, which is a great deal considering that a lot of international funds charge over 1%! Each tenth of a percentage point you save in fees is therefore allowed to grow as the investment, which means more money in your pocket.
Look for index funds in your 401k -- companies are starting to offer them. And if they're not available, put in a call to your benefits department and request that they be added next time the plan is reviewed. If you have an IRA or taxable account, you'll be able to buy them there.
So that's it! Pretty quick post. Enjoy!
P.S.: The one "downside" to index funds is that you'll never beat the market. You'll just track it net of the (low) expense ratio. Know that the vast majority of folks don't ever beat the market, and in fact trail it given HMW sins like excessive trading, letting emotion dictate strategy, etc. I'd be very suspect of a broker or hot-shot who tries to steer you away from index funds! Unless of course it's Warren Buffett calling. In short, index funds are fabulous -- they're cheap, diverse and guaranteed to track the market. All you have to do is buy them!
Index funds are, in general, super investments. They are low cost mutual funds that track an index. What does this mean? Well, let's take my favorite, since today's post is all about faves: MSCI EAFE. This is an index created over 30 years ago by Morgan Stanley that provides broad international stock exposure -- it tracks major stocks in Europe, Australia and the Southeast Asia. (Remember, the US comprises less than 50% of the world's equities, so getting international exposure is crucial. Think BMW, Diageo, Loreal, Barclays, etc.)
Instead of having to buy a few shares of stock for each of these companies in the index, which would be incredibly time consuming and expensive, you buy the index. This means you're diversified at a lower cost. So you don't have to worry about trading or following the individual equities -- HMW are way too busy for this, and you don't pay high fees. Vanguard, I-shares,and other investment companies offer index funds that track EFA, and because there isn't a big research fee given that they're just buying the index, the cost savings is passed on to you in the form of a lower management fee. Expect to pay somewhere around 0.25% total expense ratio, which is a great deal considering that a lot of international funds charge over 1%! Each tenth of a percentage point you save in fees is therefore allowed to grow as the investment, which means more money in your pocket.
Look for index funds in your 401k -- companies are starting to offer them. And if they're not available, put in a call to your benefits department and request that they be added next time the plan is reviewed. If you have an IRA or taxable account, you'll be able to buy them there.
So that's it! Pretty quick post. Enjoy!
P.S.: The one "downside" to index funds is that you'll never beat the market. You'll just track it net of the (low) expense ratio. Know that the vast majority of folks don't ever beat the market, and in fact trail it given HMW sins like excessive trading, letting emotion dictate strategy, etc. I'd be very suspect of a broker or hot-shot who tries to steer you away from index funds! Unless of course it's Warren Buffett calling. In short, index funds are fabulous -- they're cheap, diverse and guaranteed to track the market. All you have to do is buy them!
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