How to Invest the Easy Way

I've written quite a bit about taking charge of your own retirement by opening up an IRA and making regular contributions. But what if you're like a lot of people and are scared to try to pick individual stocks or bonds? Maybe you just don't want to put in the time it would take to properly research individual companies. If this sounds like you (and there's nothing wrong with that!), index funds may be the way to go for your portfolio.

What is an index fund?
In a nutshell, an index fund lets you invest in many companies -- sometimes hundreds or thousands -- that are part of the same "index." An index is simply a collection of stocks that have something in common. Some indexes represent companies of a certain size, like the Vanguard Mid-Cap ETF (NYSEMKT: VO  ) , which tracks stocks with market capitalizations in the 70th through 85th percentile. Other indexes track stocks in certain industries, such as the iShares U.S. Financials ETF (NYSEMKT: IYF  ) . And some, like the SPDR S&P 500 (NYSEMKT: SPY  ) , track well-known exchanges.

Many index funds are weighted, meaning they hold more of the larger companies in the index and less of smaller companies. For example, the aforementioned financials index has 6.7% of its assets in Wells Fargo, which boasts a market capitalization of $268.8 billion, but just 2.1% in U.S. Bancorp, which is currently valued at $77.7 billion.

There are far too many index funds to examine them all, but here are some of the best choices to help get you started, as well as their historic performance, top holdings, and reasons you might want to buy (or avoid) each one.

Are these dividend stocks a better way to go?
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

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  • Report this Comment On August 27, 2014, at 1:15 AM, Markbisselle wrote:

    Yes... I have invested in everything from indexes to gold over the years. I did my homework too... "most" of the time things panned out well. This article is informative. someone once said do not invest in any type of stock that does not pay dividends.

    One thing not listed here is gold. Some investors downplay it. I like ETF's and indexes like the next guy (or guy-ette hehe) but I had a major portion of my 401 in gold since 2002 and it paid off well.

    I am not saying gold is always better than an index or ETF etc. etc. BUT it has advantages in certain areas. It is true wealth and will be good ANYWHERE on the planet. been good for thousands of years and in the long haul you can't lose.

    I dabbled in it all.. made some nice change on one index but I sold it when I could of made more. In 2008 I took a hit on a tech index (I won't mention names). Anyway gold should be the BASE of your portfolio. It is the safest of all investments and as was said overnight you won't make a killing but in time...over the long haul you can't lose. Just use a good firm. I use to see their ratings. They are a group of investors...(and some hobbyists) As my methodology goes ... see what the "successful" big guys are doing and use the people they go with(<<NOTE the 'SUCCESSFUL' big guys...not just the big guys). Anyway it's a free club but you don't have to be a member to see their ratings of the different firms and who they use for precious metals etc. Before you make moves check them out. they have not steered me wrong.

    I will continue to dabble in ETF's and indexes but I never stray too far from.. the blues and a few metals ..mainly gold. It has worked well over the years.

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Matthew Frankel

Matt brought his love of teaching and investing to the Fool in order to help people invest better, after several years as a math teacher. Matt specializes in writing about the best opportunities in bank stocks, real estate, and personal finance, but loves any investment at the right price. Follow me on Twitter to keep up with all of the best financial coverage!

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