Why Index Funds Are Your Best Investment Bet

When planning for retirement, many people will suggest that you individually manage your funds, searching for the best specific stocks. You'll often get tips from friends - buy this or that company, invest in the next up and comer. The smartest strategy, however, is to stick with a major index fund. Index funds are mutual funds that are tied to a key stock index. Usually, this means the Dow Jones index or the Standard and Poor's 500. These are both safe bets - they average strong returns, and they don't require any management. You don't have to pick individual stocks - the money is put into a bundle of stocks that represent the economy as a whole. This achieves several important goals. First, it makes sure that your stocks are diversified. Many people are tempted to throw all of their money into a couple of hot stocks. Usually, people will have most of their portfolio invested in their employer. This is a bad idea - it's only one company, and if it goes under, you lose everything and end up in a cardboard box covered in dog fleas . Investing in an index fund means that no one company can make a significant loss in your portfolio - if one goes down, you have 499 more. Additionally, people rarely if ever beat the market. It's just not likely - statistically, even the best mutual fund managers are not able to outperform the basic indexes of stocks over time.