August 1, 2020 - 6:18 AM EDT
Why Don't the Wealthy Invest in Index Funds?
Why Don't the Wealthy Invest in Index Funds?

Investing in stocks is a great way to grow your net worth, but it can also be somewhat of a guessing game. Unless you have the knowledge, time, and patience to vet each individual company you're considering before buying its stock, you could wind up with a portfolio that's weighed down with bad deals and underperformers.

That's one reason why many investors tend to appreciate index funds. These passively managed funds are designed to track the performance of a market index -- usually by holding all the companies in it in proportion to their weight in the index. The performance of an S&P 500 index fund, for example, should mirror that of the S&P 500.

This makes them a wise option for people who want to simplify the investing process. You don't need to research stocks one by one, and you get instant portfolio diversification. (Case in point: Invest in an S&P 500 index fund, and you're effectively putting your money into 500 of the largest U.S. companies by market capitalization -- which makes it a fair proxy for the country's economy.) And index funds are also fairly inexpensive.

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Source: Motley Fool (August 1, 2020 - 6:18 AM EDT)