While it may seem so, investing doesn't have to be complicated. Most experts will readily tell you that it's all about using your common sense. So, learning the stock market is more about developing a common sense strategy that works best for the individual investor. For some, that strategy involves investing in low cost index funds.
The Classic Fund:
When you're ready to choose your fund, the classic index fund is the one that most people will turn to. It is usually the one that is the most diversified, so you're not putting all your eggs in one basket, it holds many different stocks, and it costs the least to manage. Add to all of that, it has a high tax efficiency to boost your earnings along.
When you stop looking at all the figures and formulas and just get down to the basics, it is very easy to see why the Classic Fund would be a smart investment choice. It's a simple idea that increases your chances of winning every time.
The Purpose of the Index Fund:
There are two reasons to invest in an index fund: the diversity, which lowers your risk of investing in the stock market, and the cost. No doubt these are both appealing to you. While it doesn't provide the drama often portrayed in movies that many visualize the market to be, it is the most logical investment a new investor could make. By investing in low cost index funds, even the novice investor can win in the stock market game.
Not All Funds Are Created Equal:
Not all index funds are low-cost, however, so you must be careful when you choose. Make sure that you check every detail of the fund to make sure that the money you earn won't be lost on managing the fund. This is not always easy to find and you may have to enlist the advice of some professionals to make sure that you are purchasing the right kind of stock. Some may have very tiny expense ratios while others may have expenses that are so high they defy logic. You'll also find a bunch of no-load funds, and in almost a third of them you'll find that they have a pretty hefty front end load. Then you also need to factor in the amount of the commission.
If you're determined to invest in low-cost funds and you still wish to bypass the broker, try some of the online sites that can help you make a trade. While they do charge fees, they are relatively low with an average of 0.13% of the total cost of the transaction.
Investing in the stock market can be a little scary but those who find low cost index funds will find a means to gain their footing in the financial world. They are probably the easiest way to break into the market and get the most out of an investment that could introduce the novice to a whole new and exciting world.