This Popular Investment Has 2 Major Flaws
Investing your money is a good way to grow wealth, and in that regard, you have choices. You can buy individual stocks for your portfolio, or you can load up on index funds.
Index funds are funds that track the performance of a specific index. S&P 500 index funds, for example, are pretty popular because the S&P 500 itself is comprised of the largest publicly trading companies on the market. Of course, you don't have to buy S&P 500 index funds. Rather, you can buy shares of a bond fund, or a fund that focuses on a specific market sector.
There are plenty of benefits to choosing index funds. For one thing, they charge extremely low fees -- much lower than what you'll pay for actively managed mutual funds. They also save you the legwork of having to research individual companies. And, adding index funds to your portfolio is a good way to diversify. If you buy shares of an S&P 500 index fund, you'll gain exposure to 500 distinct companies in one fell swoop, and it really doesn't get easier than that.
Source Fool.com
