The Fool FAQ

Index Funds

The Fool FAQ

I'm a bit scared of stocks. My picks for the Kentucky Derby always come in last, and I haven't ever picked a World Series winner. So, being a beginner, is there some safer way to invest in stocks than picking individual issues?

Well, consider this. Over the past sixty years, the S&P 500, an index of five hundred of the largest and most profitable companies in the United States, has risen an average of 10.5% annually.

That means, if you could've invested $10,000 into the S&P 500 sixty years back, today you'd be able to call up your discount broker, sell your position for $3.99 million, pay down your taxes of $1.12 million (unless you wanted to hire a tax accountant to find ways to weasel around those debits), and you'd end up with $2.87 million.

So, if you wish to avoid the greater risk of investing in individual issues, just shoot some cash into an index fund and sit back and relax while your money grows. The original index fund is Vanguard's Index 500 Trust. They have a nice long track record of closely tracking the S&P's returns, and their yearly maintenance fee is one of the lowest around. You can check them out at www.vanguard.com.