Index funds – mutual funds with portfolios that mirror market indexes like NASDAQ or the New York stock exchange, are extremely popular. Many people believe they offer broad market exposure with less risk compared to other forms of investing.
But not everyone believes that index funds the best choice for personal investors. A week ago I shared a brief conversation about money with Sparky, a friend to whom I often go for investment advice — he reads widely on the subject, and is well-informed. He doesn’t like index funds. Also last week, Jim at Blueprint for Financial Prosperity urged his readers, “Don’t just buy index funds.” Another blogger is worried that even index funds may be getting too complicated.
Even some professionals prefer other stock investment strategies. For example, Lowell Miller wrote a well-regarded book entitled The Single Best Investment: Creating Wealth with Dividend Growth in which he touts high-quality, moderate-growth, dividend-producing stocks as the best choice.
With all that said, index funds might not be the best way to invest, but for many investors (especially those who don’t have time to track the markets closely) they may offer an extremely smart and cost-effective way of making money for the future.