What is an Index Fund?
There are a many variations when it comes to this type of investments. Some of these include the S&P 500, Real Estate, International, and various other broad spectrum holdings. The way this fund works is by closely following the market. For example, the S&P 500 Index Fund keeps its holdings based on the S&P 500. Therefore, as the market changes you immediately see the changes in your fund’s value.
Throughout the years, the S&P 500 Index funds have done very well in the investment world. They have seen an average annual increase of approximately 10% since 1927. If history holds true, this can be huge for the average investor.
There are also other financial benefits when discussing this type of fund. Because they follow a certain rules, the brokerage firms do not have to do as much work maintaining the fund. This allows them to pass the savings off to the investor.
What is a good projection based on previous returns?
If the S&P 500 Index fund were to hold its historical return rate and we were to invest $500 a month for the next 20 years, we would have $378,014.00 in our account after only investing $120,000.00. What about someone who is young and can only invest $200.00 a month. Well, if they were to keep that up from age 20 to age 60, they would have $1,168,444.00 in their account. This is after investing $96,000.00.
Because index funds have historically always bounced back after a down-turn, it allows us to have a little more peace of mind when making this type of investment. Even during the down years, we still see a progressive increase in fund pricing. Going back to our sample on Credit Score Assassination, we can look at the average increase of 10% annually and become very excited. As always, make sure you take the time to look over all of your investment options, but I would definitely take the time to review an index fund.