Sunday, June 3, 2012

Low-Cost Index Funds Are A Great Starter for Small Investors

I concur with Warren Buffett's view that for most small investors who don't have time to research individual companies, low-cost index funds are the best way to invest in the stock market.

It is the recommended approach for beginners. Index funds mimics the stock market index they are tracking. A stock market index comprises of the major companies of a particular country. Once profits are made from index funds, the investor can use part of the profits to progress on to invest in individual companies. Investing in a basket of big companies of a country is safer than investing in 1 or a few companies.

Bulk of profits made from the 2008 financial crisis are from the steep rise from Mar 09 to Apr 10. Thereafter the market is sideways till now. Looking back in hindsight, if i had invested in S'pore index instead of a defensive stock(profited less) i would have doubled my investment in about 1 year. Sideway movements in a channel thereafter is like holding on for dividends - getting paid for doing nothing.

The way forward for me is low-cost stock market index fund instead of a defensive stock counter. The more financial crisis ocurring the better - more opportunties.

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