Index Fund: Vanguard 500
What if you don’t really want to overthink things and simply want to “buy the market” to get a piece of stocks in an easy and low-cost way? There’s nothing better than an index fund if that’s the case — which, as the name implies, is a mutual fund that is locked into a benchmark and its constituent holdings.
Vanguard pioneered low-cost index funds, and its Vanguard 500 Index (MUTF:VFINX) is one of the most popular products out there with more than $25 billion under management and a rock-bottom 0.17% expense ratio. That’s a mere $17 on every $10,000 invested!
Your holdings are the holdings in the S&P 500 — blue chips you know and love that include Apple (NASDAQ:AAPL) and General Electric (NYSE:GE) — so it’s easy to know what’s in this Vanguard fund. It’s also easy to track your performance, since you simply watch the headline index; your fund will mirror the performance almost exactly.
Index funds are the bedrock of any good 401k because they are low-cost, and because active managers have a hard time outperforming them. It might surprise you, but passive index funds regularly return more money to investors than human beings picking stocks on their own analysis!
So don’t get crazy or enamored with a manager or a strategy. An index fund keeps expenses down and performance up.
If you can’t add VFINX, ask your 401k administrator for another index fund that is similar. Any good plan should provide these kinds of options to investors.