Things You'll Need:
- internet
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Step 1
Knowing the Basics to Choose Stock Market Index Funds
The first step to being able to choose stock market index funds that will make you money is having a working knowledge of what an index fund is. A stock market index fund is a fund that is managed by a computer in most cases rather than an actual investor. It is generally comprised of a number of stocks that are representative of a stock index like the Dow Jones or Nasdaq. This means there is less extra cost associated with the fund because there are no people to pay to manage it. The most important thing to know about stock market index funds is that their goal is to make the same returns as the market. Stock index funds are not trying to beat the market like most funds. They are simply trying to invest your money to mirror the return on the market. This means that when the market goes up, you are making money, and when the market goes down, you are losing money. Most people see stock index funds as safer investments, especially over time, because the market generally shows returns over time. Once you understand these basic tenets, you are ready to start choosing stock market index funds. -
Step 2
Find Out the Management Fee to Choose A Stock Market Index Fund
The first thing you should be looking at when choosing a stock market index fund is the management fee associated with the fund. Even thought these funds are not run by people, there is still a fee, anywhere from .25% to 5-6% of your return. Look for a low cost stock index fund (between .25-2%) since that cost will come directly out of your return. -
Step 3
Pick A Safe Choices When Choosing A Stock Index Fund
Although there are potential thousands of stock index funds you could choose, most stock analysts recommend going with one of the big four fund companies - Fidelity, Dimensional Fund Advisors, T. Rowe Price, or Vanguard. Start by checking out their websites and learning about their current offers. Since the economy is down right now, many are offering great deals to start up investors. -
Step 4
Start Small
The final thing you should do when choosing a stock index fund is starting small. Do not invest everything you have at the beginning. Choose a company that feels right to you and then invest about 10% of what you plan to invest. Feel out the company and see how you do. If you get a good feeling, then it makes more sense to invest more. Also, you shouldn't invest everything in stock market index funds. Although they are normally sound investments, you want a diverse portfolio.
