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Is It True That Index Investments Has Great Results With Low Risk?
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December 15th, 2011Investing mistakes
You will discover a lot of mutual funds and ETFs out there. But only a few of them perform results as good as S&P 500 or better.
It’s well known that S&P 500 performs good results in the long run. But how can we switch these great results into profit? You can buy index fund shares.
Index Funds search for investment results that match the total return of the market index (for instance S&P 500). Investing into index funds means that you’ll find cases where the result of this investment will be close to the outcome of the index.
As we can see there, we have very good results doing nothing. This is actually the primary advantage of investing into index funds.
This investment approach works a lot better for the long term. It means that you have to invest your money into index funds for 5 years or longer.
The majority of people don’t have enough money for a big one time investment. But you may invest a smaller amount of money every month.
We have tested the performance for 5 years with regular investments into a few indexes (S&P500, S&P Mid Caps 400, and S&P Small Caps 600). The outcome of testing shows that each month investing small quantities of dollar gives great results.
Statistics show that you may receive profits from 26% to 28% of your initial investment into S&P 500 with 80% probability.
You should remember that investing into indexes isn’t a risk-free investment. There was some profit lost. The lowest result was losing about 33% of our initial investment into S&P 500.
Diversification is the best method to reduce risk. Investing into two to three different indexes can reduce risk substantially. Best results are given by investing into indexes with different types of assets (bond index and share index) or various classes of assets (small caps, mid caps, big caps).
For additional details on diversification or on building risk capital for your small business, its advised that you talk to a business consultant about a company merge by exploring: equity venture capital or going public ipo.
Related Reading:
Tags: Caps, Diversification, index fund, index funds, initial investment, investment, investments, profit, result
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