INDEXED MUTUAL FUNDS
In a world of complex investment products, one of the easiest to understand may also be appropriate for a variety of individual financial objectives. The appropriateness of an investment depends on personal goals but many individual and institutional investors have turned to index investing, a strategy that attempts to approximate the performance of a broad market index.
As an investment strategy indexing began in the early 1970s in the United States, when large institutional investors used it as a low-cost way to achieve competitive, long-term performance for retirement and other investment programs. The index fund concept was pioneered by Vanguard Funds. More recently, index funds have gained popularity among individual investors as a relatively conservative approach to stock market investing.
Investment professionals emphasize the importance of including stocks in any individual long-term strategy because of their historically better performance compared with other investments and inflation. Most of the investors believe that stocks are “efficiently priced,” meaning that their prices reflect all relevant information, so that it is difficult to consistently outperform the market through active management. Therefore, a mutual fund that seeks to reflect the market rather than to beat it can be an easy and cost-effective way to gain broad equity exposure.
By definition, indexed mutual funds cannot outperform the market. However, the funds cannot give you the same returns as the market index they track either. Because there are some fees and expenses related to the index funds.
In 1884 Charles H. Dow, first editor of The Wall Street Journal and founder of the Dow Jones Company, originated the concept of measuring a stock market’s pe ...