Index Fund Investing for beginners: This is the best investment you can make that requires very little work, a relatively low time commitment, and has some fantastic returns.

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Why Invest in an Index Fund: Low fees/expense ratios.
Index funds are easy to construct for investment managers, very simple to manage and do not have large costs. This is also referred to as a PASSIVELY managed fund. You receive a portfolio of stocks that automatically gets balanced and adjusted over time, without doing any work, and you pay low expense ratios (fee for owning index fund) that are usually 0.04% or slightly higher.

What is an Index Fund?
An index fund is a basket of stocks that you can invest your money in, and then you’ll own a small percentage of the entire thing. Index funds track one full stock market completely, as opposed to one specific stock.

This is not the same as a MUTUAL FUND, as a mutual fund is managed by professional stock analysts who try to beat the market index for their clients. These additional costs associated with paying fund managers ultimately gets passed on to you, as the investor. Only 29% of fund managers in the US beat the stock market index returns last year after deducting fees.

Better Returns
Most investors will get a HIGHER return over a long period with an index fund, rather than investing in individual stocks on their own.
Most fund managers fail to beat the market after fees, demonstrating that investors are better off indexing

Diversification
You need at least 15 uncorrelated individual stocks in your portfolio to alleviate portfolio risk. If you are not fully diversified then one stock dropping in price could cost you a lot of money. On the other hand, if you buy the S&P500 500 index fund, you will achieve diversification and will not have the same portfolio risk as an individual stock picker. This means having a few companies go down or up won’t impact your portfolio too much, but you get the advantage of riding the entire market as a whole as they rise in value over time.

Simplicity
It is very easy to start index investing and you do not need any fundamental knowledge about valuing stocks to do this. All you need is a brokerage account and regular deposits into your account to invest in stock market indexes.

My favorite index funds are below:
* US Stocks: Vanguard S&P 500 ETF - VOO
* Emerging Markets: Vanguard Emerging Markets Stock Index Fund - VWO

Index funds and ETFs give you diversification at a low price and you also have the option to invest in multiple asset classes if you buy a Bond/Gold/Real Estate ETFs too.

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