With the growing craze for investing, index funds have captured a huge market of investment with its great ROI. But before you invest in this, here are a few things you need to be aware of:-
You need to have a clear knowledge of what index funds is and how it works.
To make your work simpler let’s talk about what an Index fund is, it is a type of mutual fund that tracks the changes happening in the stock market and gives the ROI(return or investment) based on the market indexes. Some people may also refer this as a type of exchange trading fund tracking the market index, which basically is an estimated data of the changes happening in the stock market.
Second thing you need to ask yourself is that whether it’s fitting in the criteria of your investment goals or not.
If you are a beginner and your goal is to invest in the long run with lower risk then index fund is the best option to opt for. With it’s attractive ROI, it is it is surely one of the best funds to invest in. Also, if you aren’t sure from where to start for retirement planning, investing in index fund is going to pay you at the time of your retirement.
One of the most important reasons that has boosted the need for investing currently in index funds is the rising inflation.
The hype it’s receiving is definitely the need of the hour. In order to save money and keep up with the inflation, index funds are a real game changer. People who have been keeping their money in the savings account need to know that it will do no good to you in the future as due to the rising inflation the value of your money will decrease in the long run. Here’s how:- The rate at which the inflation is rising is more than the interest rate you are receiving on your money saved in your bank account, hence eventually its value will decrease.
So in order to keep up with the inflation, you need to invest your money where the ROI is same or greater that the rate at which inflation is rising rather than saving it where the ROI is far less than the inflation rate.
The key to investing anywhere is the planning you do before.
You need to make sure how much amount will you be able to put where and for how long. Just like other tasks that you do on a day to day basis requires patience in order achieve your long term goals, investing in a long term fund like index fund requires a lot of patience to get to your financial goals. The compounding effect that you will receive in the long term, 10 to 20 years apart is going to be the ultimate key for your financial success for investing in the index funds.
