Index funds are also known to charge very low fees because unlike actively managed mutual funds, they don’t employ fund managers to select stocks individually. Instead, they simply follow market indexes that already exist.
Finally, index funds don’t require nearly the same research as it takes to buy individual stocks. Granted, you shouldn’t pick index funds blindly. Rather, you should research your options and see what fees various funds charge, and what their performance looks like in recent years as well since each fund’s inception.
But researching index funds takes a lot less than time than digging into different companies’ financials to determine whether they’re worth investing in. Besides, if you’re saving for retirement in a 401(k), you’ll be limited to funds anyway — those plans generally don’t allow you to invest in individual stocks.
Your ticket to retirement wealth
How much money might you accumulate by investing in index funds? Let’s say you’re able to save and invest $400 a month over 40 years. If the index funds you choose generate an average annual 8% return (which is several percentage points below what the S&P 500 has delivered over the past 30 years), then you’ll wind up with about $1.24 million. And that’s not too shabby at all.
Though you don’t have to limit yourself to index funds in the course of investing for retirement, they’re a solid option to look into, especially if you don’t know a ton about the stock market and aren’t particularly eager to learn. Loading up on index funds could help you close out your career with a lot of money. And that, in turn, could pave the way to the fulfilling retirement you’ve always imagined.
