A lot of mutual funds spend a lot of time and money trying to choose the right stocks for their portfolios. Fund managers choose stocks that they think will go up in price and dump stocks that they think will go down in price. These types of funds are called actively managed funds because someone actually has to watch the fund carefully to determine whether to buy or sell the fund’s assets. These actively managed funds charge investors a lot of money for their efforts in trying to increase the value of the funds.
The dirty little secret though in mutual funds is that there are funds that need no managers, and yet still do very well. These types of funds are called index funds and you can see examples of such funds examples of such funds on the table below. The most common index funds are made up of stocks in the S&P 500. (In another section of this site we discussed that the stocks in the S&P 500 are 500 of the biggest companies in the country). Another common index fund is a fund that mirrors the Wilshire 5000—an index which reflects the U.S. stock market. See the table at the bottom of this page for a description of the various U.S. stock market indices from which funds are created.
According to data from Morningstar, the leading authority on mutual funds, the returns on index funds beat 70% of the returns on all actively managed funds. What this says is that a mutual fund that does nothing but hold S&P 500 stocks does better on the average than most funds that are actively managed by hot-shot Wall Street "geniuses". Although there is no guarantee that index funds that are not actively managed will continue to better than a strong majority of all stocks that are actively managed, index funds make for an easy choice for Teenvestors who don’t want to knock themselves out choosing funds out of the thousands available. Unless you are an investment genius, we recommend you stick to index funds.
Teenvestors should try index funds—at least when they start off investing in mutual funds. Three big index funds to consider are the following: the Vanguard 500 Index, the Vanguard Total Stock Market Index, and the T. Rowe Price Total Equity Market Index. The box below shows you a list of some of the major index funds available to investors.
|
|
|||||
|
Fund |
Symbol |
Index |
Minimum Balance for Regular Accounts |
Custodial Account Minimum Balance |
Phone/Website |
|
Vanguard 500 Index |
VFINX |
S&P 500 |
$3,000 |
$1,000 |
800-871-3879 |
|
USAA S&P 500 Index |
USSPX |
S&P 500 |
$3,000 |
$1,000 |
800-382-8722 |
|
Scudder S&P Index 500 |
SCPIX |
S&P 500 |
$2,500 |
$1,000 |
800-728-3337 |
|
T. Rowe Price Equity Index 500 |
PREIX |
S&P 500 |
$2,500 |
$1,000 |
800-225-5132 |
|
T. Rowe Price Equity Index 500 |
PREIX |
S&P 500 |
$2,500 |
$1,000 |
800-225-5132 |
|
Schwab S&P 500 Fund |
SWPIX |
S&P 500 |
$2,500 |
$1,000 |
877-488-6762 |
|
Vanguard Total Stock Market Index |
VTSMX |
Wilshire 5000 |
$3,000 |
$1,000 |
800-871-3879 |
|
T. Rowe Price Total Market Index |
POMIX |
Wilshire 5000 |
$2,500 |
$1,000 |
800-225-5132 |
|
Vanguard SmallCap Index |
NAESX |
Russell 2000 |
$3,000 |
$1,000 |
800-871-3879 |
Description Of Various U.S. Stock Indices The Dow Jones Industrial Average. Also known as The Dow, this is the most popular stock index. It is made up of 30 blue-chip stocks. Nearly all of the stocks are traded on the New York Stock Exchange and you’d recognize most of the names in the index. (See www.djindexes.com). The S&P 500. As the name suggests, this index is made up of 500 stocks. The stocks in this index are traded on the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), and the Nasdaq Exchange. Because the S&P 500 includes so many companies, some consider it a better gauge of how the market is doing than The Dow. (See www.standardandpoors.com). The Nasdaq Composite. The Nasdaq Composite Index is made up of the thousands of stocks traded on the Nasdaq Exchange. The Nasdaq Composite Index has traditionally reflected the movement of the value of small companies and of technology stocks. (See www.nasdaq.com). The Nasdaq 100. The Nasdaq 100 is made up of the top 100 non-financial companies in the Nasdaq stock market. It is different from The Nasdaq Com-posite Index, which is made up of nearly 5,000 companies. (See www.nasdaq.com). Russell 3000, Russell 2000, and Russell 1000. The Russell 3000 is an index made up of roughly 3,000 companies that collectively seeks to represent the whole United States stock market. The Russell 2,000 Index is an index made up of the smallest 2,000 companies in the Russell 3000 Index. The Russell 1000 Index, on the other hand, is made up of the largest 1,000 companies in the Russell 1000 Index. (See www.russell.com). Wilshire 5000 Total Market Index. The Wilshire 5000 Total Market Index seeks to track the entire United States stock market . It actually contains more than 6,500 companies. (See www.wilshire.com).
|
