Are index funds a great investment?

[aquaswim47]

This may suprise you, WallStreetGolfer, but I love index funds; they are a passive investment strategy that allows investors to diversify their holdings without trying to beat the market (passively-managed holdings). I really like these investments due to their low fees, consistency, and ability to get average returns in the market.

Quote: Unless you take on more risk than the market, you cannot beat the market. I consider small companies with a price range of $3-10 can have real rewards from increased risk as can margin, but I consider penny stocks (just my opinion) to not offer the adequate return for the risk assumed. Also, most large companies like Microsoft started with high price capitilizations and went through stock-splits.

Actively-managed funds tend to underperform index funds and have higher fees as well. So for almost all investors, the average passively-managed small cap fund (such as PZI microcap) can pay really high rates of return over time. VTI (20%), PZI (10%), VO (20%), VBK (20%), EEM (10%) and IOO (20%) may make an excellent portfolio, since it doesn't try to beat the market. You will be exposed to market (systematic) risk.

So, I love index funds; they are a great investment. I loved them since I was 8. Why do I also like actively-managed funds? Because I myself have tried to try to take profits, and have been successful, when the market has a downturn. I have a great instinct at being able to tell when the market is going to turn, or at least I feel that way. Still, I like index funds and instead of taking everything off the table, I simply reduce my stock holdings to the minimum level and ride out the cooling-off period. However, I continue dollar-cost averaging into stocks so I don't miss out, either.

[aquaswim47]

Are one's that you choose that doesn't take on more risk than what you can tolerate and being able to know that you have an adequate emergency fund.

[investoid]

aquaswim - I think along the same lines as you and blogged about this recently.

I also like to have some actively managed investments. Currently, that means I am investing in individual stocks, but I am also looking at picking up a superstar Canadian equity fund that's returned consitently above the market.

[aquaswim47]

Hey thanks for the advice Investoid. It's greatly appreciated. I loved reading the article.

You're welcome any time. Keep up the good posting.