Investors have to avoid the temptation to jump on trends that may not last long. The risk involved with index fund-based portfolios is limited to stock market fluctuations because these investments encourage long-term holding periods rather than short-term gains through frequent trading.īuilding a low-cost portfolio is simple, but it does require discipline. Index funds are invested in a broad range of companies, so their returns reflect those gained by businesses across America during that year. They avoid exorbitant fees and tax penalties, which is why they’re able to grow consistently. Index funds have been the most successful investment strategy in history. It’s important to understand basic math principles and how risky behavior can hurt them financially. However, if fees and taxes cut into the growth rate, then investors will only have about $100,000 after 30 years. If they can make their investments grow at a rate of 7%, then they will end up with more than $300,000 by the time they’re 70 years old.

Investors should keep in mind that the power of compounding is very strong.

These actions lead to costly taxes and fees that ultimately limit a portfolio’s overall return rate. The average investor has made less than what the market has gained over the past 25 years, and some have even lost money by frequently trading stocks, buying popular investments to chase short-term gains, or hiring mutual fund managers in hopes of better performance. This leads to them making poor decisions and not performing well overall. Most investors don’t make as much money as they could, because they either don’t understand the market or think that investing in stocks is easy. By investing consistently in index funds, average workers can build sizeable fortunes that not only protect them in their final years, but also benefit their children and grandchildren as well. Since index funds are not overseen by professional portfolio managers, they incur lower fees than those who choose to hire investment advisers and money managers. Index funds are mutual funds that closely match the performance of a given financial market by allowing investors to own small portions of entire markets through diversified portfolios. The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (2007) is a book that argues in favor of index funds. 1-Page Summary of The Little Book Of Common Sense Investing Overview

Little book of common sense