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| Other Index Options: Beyond the S&P 500 |
| S&P 500 index funds have become a popular option among investors in recent years. That's because these passively managed funds are an easy way to invest in both a variety of solid, well-known stocks–such as Google, Apple, and Coca-Cola–as well an eclectic mix of industry sectors, from information technology and telecommunications to utilities and energy. On top of that, you don't have to worry about whether or not your fund is going to beat "the market." |
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| In addition, S&P 500 index funds can be less expensive to invest in than actively managed funds (an actively managed fund is one in which a manager decides which investments to buy or sell in an attempt to improve returns or better manage risk). But, as its name suggests, the S&P 500 index includes only 500 companies. That means it leaves out thousands of publicly traded companies in the US, from small, fast-growing firms to midsize corporations. And there's foreign stocks, and bonds to consider, too. |
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| Luckily for indexing fans, there's an index fund for almost any segment of the investable market. Looking to invest in some small, fast-growing companies? At least two index funds out there track them. Want to make sure you've got Europe covered? Not only are there European index funds, there are offerings that follow individual countries, too. There are indexes that track natural gas companies, Internet firms, and businesses that sponsor racecars. |
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| There also are index exchange-traded funds (ETFs). ETFs can be traded throughout the day over an exchange (mutual funds only can be redeemed at one price daily). ETFs generally have lower annual expenses than mutual funds and index funds, but you have to pay commission to trade them. ETFs also are generally more tax efficient than mutual funds. |
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| Another option are enhanced index funds. Like index funds, enhanced index funds attempt to match an index's performance. Unlike an index fund, however, enhanced index funds attempt to better the index by either adding value or reducing volatility through selective stock-picking. |
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| Of course not all index funds are created equal. Two funds that track the same index might have different costs. And two funds that follow the same portion of the market, such as small companies, may not use the same index as their model. The chart below lists most of the major parts of the market you can invest in. |
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