So, you’ve taken advantage of open enrollment, and set up your 401k account. Or maybe you had one already. The bigger question is:
What’s the best investment to start with?
Looking at all the investment options can be overwhelming—so overwhelming that 65% of employees leave their dough in the paltry-paying money market account option. Don’t make that mistake.
Instead, choose an index fund. It’s a rock-solid first step for any investor, and a great base to build on.
An index fund is a basket of stocks chosen to represent some segment of the market. Index funds don’t have money managers; they are passively managed, i.e. the chosen stocks move in tandem with that part of the market.
For instance, the S&P 500 is an index, as is the Dow, the Nasdaq 100, and the Wilshire 5000. And there are specific mutual funds that reflect those indices (and many others).
What’s so special about an index fund?
- Being passively managed, they cost you much less than actively managed mutual funds, which have a team of money managers at the helm.
- If you go with an S&P 500 index fund or a Wilshire 5000 index fund (usually called a “total market” fund), you’ll get instant and broad diversification across the market.
- Lastly, in general index funds beat their more expensive, actively managed kin when it comes to performance.