How to Invest in Index Funds

When you listen to the radio, and hear about the Dow Jones Industrial Average or the S&P 500, they are talking about stock indices. An index is a list of stocks (or bonds, or other investment instruments) that is supposed to be a representative sample of the market or some portion of the market. There are mutual funds that try to hold stocks to match a given index. Index fund have proven successful and often out-perform actively managed funds. Here's how to invest in index funds.

	Research different indices. The Dow Jones Industrial Average is the best known index from the news, but since it only comprises 30 companies, it's not very diversified. The S&P 500 is probably the most well known index for index funds. Some others include the Russell 2000, the Wilshire 5000, the MSCI US REIT Index, and many more.
	Find an index that matches your investment goals and risk appetite. Look at the long term track record of that index. A good standard place to start is the S&P 500.
	Find companies that offer mutual funds that track the index. Make sure that their fund actually does a good job of matching the returns on the index. Then, find the company that will allow you to buy and hold the index fund for the least amount of money. This means that you look at expense ratios, account fees, and more to find the best overall price. Vanguard is the pioneer of index funds and is a good place to start looking.
	Invest in the fund! Invest in up markets and down markets and keep building up your investment!