{"id":7046,"date":"2013-10-09T14:31:06","date_gmt":"2013-10-09T21:31:06","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=7046"},"modified":"2016-12-21T07:28:21","modified_gmt":"2016-12-21T15:28:21","slug":"what-are-index-funds-for-in-tough-markets-plenty","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/what-are-index-funds-for-in-tough-markets-plenty\/","title":{"rendered":"What Are Index Funds For In Tough Markets? Plenty…"},"content":{"rendered":"

One of the misconceptions people have about\u00a0passive investing<\/a>\u00a0is that it’s a “set it and forget” approach to the\u00a0markets. What are index funds for, some people ask me, if you just buy them and hold them?<\/p>\n

Plenty, I say. First and foremost, index funds greatly reduce your risk of\u00a0emotional trading<\/a>. If you own, for instance, a large position in\u00a0Apple\u00a0(AAPL), you might have been plenty happy when it was zooming upward during 2012. Many investors were.<\/p>\n

\"what<\/a><\/p>\n

Ever stop to think about why it was rising so quickly? That’s right, it was largely because of those same investors. Our natural tendency is to buy a hot stock while it’s hot. When it returns, inevitably, to a realistic price, we sell out.<\/p>\n

That’s buying high and selling low, the very opposite of what you should do as an investor.<\/p>\n

An\u00a0index fund<\/a>\u00a0investor would have had some exposure to\u00a0Apple, just by owning the index. Crucially, owning all 500 stocks in the S&P 500 means you are less likely to focus on a single ticker with such obsession.\u00a0Diversification<\/a>\u00a0buys you sanity.<\/p>\n

Another advantage of indexing is that you neatly avoid market-timing traps. Too often, retirement investors get nervous about their savings (who wouldn’t?) and begin to believe that they can profitably trade the\u00a0markets.<\/p>\n

Nothing could be further from the truth. It might feel good for a few weeks to go to cash, but when do you by back in? Right before a double dip? Would you really recognize the eventual market bottom?<\/p>\n

Market timing<\/a>\u00a0is incredibly hard to do. Professionals mess up their timed trades with regularity. The difference between you and a money manager is that if the manager blows a portfolio, he’s basically still in business.<\/p>\n

If you blow your retirement funds with a single bad call, well, you’re out of business. All the years spent building up your nest egg are now wasted. I don’t mean to exaggerate, but this happens to ordinary people all the time.<\/p>\n

Owning an index does mean that you are exposed to the\u00a0markets, but that’s why you should own indexes in the form of a portfolio. By owning entire indexes across a variety of asset classes, you get the exposure you need in the right measure for the\u00a0risk<\/a>.<\/p>\n

What are index funds for?<\/h2>\n

A young investor might be heavily into stocks, not just the Dow but small caps, foreign stocks and emerging\u00a0markets\u00a0as well. His or her bond portfolio would be small, and there would be a smattering of\u00a0real estate<\/a>\u00a0and commodities on the side.<\/p>\n

An older investor with more to lose would own close to the reverse. The bond portion would be greatly diversified, of course, to include income from\u00a0dividend-paying stocks<\/a>, emerging market bonds, corporate bonds and high-yield debt.<\/p>\n

Both would rebalance \u2014 selling gainers to buy assets that have fallen out of favor \u2014 in order to capture gains from a moving market along the way. Index funds simply make this strategy cheaper to purse and, thus, a more effective way to build a\u00a0retirement<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

One of the misconceptions people have about\u00a0passive investing\u00a0is that it’s a “set it and forget” approach to the\u00a0markets. What are index funds for, some people ask me, if you just … Read more →<\/span><\/a><\/p>\n","protected":false},"author":8,"featured_media":7048,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_wp_rev_ctl_limit":""},"categories":[7],"tags":[62,42,43,37],"yoast_head":"\nWhat Are Index Funds For In Tough Markets? Plenty... | MarketRiders<\/title>\n<meta name=\"description\" content=\"What are index funds good for, some people ask me, if you just buy them and hold them? Plenty, I say.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.marketriders.com\/investing\/what-are-index-funds-for-in-tough-markets-plenty\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"What Are Index Funds For In Tough Markets? Plenty... | MarketRiders\" \/>\n<meta name=\"twitter:description\" content=\"What are index funds good for, some people ask me, if you just buy them and hold them? Plenty, I say.\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/www.marketriders.com\/investing\/wp-content\/uploads\/2013\/10\/Baishamen_Park_-_amusement_park_-_roller_coaster_adult_-_01-1.jpg\" \/>\n<meta name=\"twitter:creator\" content=\"@marketriders\" \/>\n<meta name=\"twitter:site\" content=\"@marketriders\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"MarketRiders\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.marketriders.com\/investing\/what-are-index-funds-for-in-tough-markets-plenty\/\",\"url\":\"https:\/\/www.marketriders.com\/investing\/what-are-index-funds-for-in-tough-markets-plenty\/\",\"name\":\"What Are Index Funds For In Tough Markets? Plenty... | MarketRiders\",\"isPartOf\":{\"@id\":\"https:\/\/www.marketriders.com\/investing\/#website\"},\"datePublished\":\"2013-10-09T21:31:06+00:00\",\"dateModified\":\"2016-12-21T15:28:21+00:00\",\"author\":{\"@id\":\"https:\/\/www.marketriders.com\/investing\/#\/schema\/person\/f2be262f5c0f3ed5ad50d6c40640ba8c\"},\"description\":\"What are index funds good for, some people ask me, if you just buy them and hold them? Plenty, I say.\",\"breadcrumb\":{\"@id\":\"https:\/\/www.marketriders.com\/investing\/what-are-index-funds-for-in-tough-markets-plenty\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.marketriders.com\/investing\/what-are-index-funds-for-in-tough-markets-plenty\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.marketriders.com\/investing\/what-are-index-funds-for-in-tough-markets-plenty\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.marketriders.com\/investing\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"What Are Index Funds For In Tough Markets? Plenty…\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.marketriders.com\/investing\/#website\",\"url\":\"https:\/\/www.marketriders.com\/investing\/\",\"name\":\"MarketRiders.com\",\"description\":\"How To Become A Better Investor\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.marketriders.com\/investing\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/www.marketriders.com\/investing\/#\/schema\/person\/f2be262f5c0f3ed5ad50d6c40640ba8c\",\"name\":\"MarketRiders\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.marketriders.com\/investing\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/8e06113f594828daaf313d283544d566?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/8e06113f594828daaf313d283544d566?s=96&d=mm&r=g\",\"caption\":\"MarketRiders\"},\"sameAs\":[\"https:\/\/www.marketriders.com\"],\"url\":\"https:\/\/www.marketriders.com\/investing\/author\/support\/\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"What Are Index Funds For In Tough Markets? Plenty... | MarketRiders","description":"What are index funds good for, some people ask me, if you just buy them and hold them? Plenty, I say.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.marketriders.com\/investing\/what-are-index-funds-for-in-tough-markets-plenty\/","twitter_card":"summary_large_image","twitter_title":"What Are Index Funds For In Tough Markets? Plenty... | MarketRiders","twitter_description":"What are index funds good for, some people ask me, if you just buy them and hold them? Plenty, I say.","twitter_image":"https:\/\/www.marketriders.com\/investing\/wp-content\/uploads\/2013\/10\/Baishamen_Park_-_amusement_park_-_roller_coaster_adult_-_01-1.jpg","twitter_creator":"@marketriders","twitter_site":"@marketriders","twitter_misc":{"Written by":"MarketRiders","Est. reading time":"3 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/www.marketriders.com\/investing\/what-are-index-funds-for-in-tough-markets-plenty\/","url":"https:\/\/www.marketriders.com\/investing\/what-are-index-funds-for-in-tough-markets-plenty\/","name":"What Are Index Funds For In Tough Markets? Plenty... | MarketRiders","isPartOf":{"@id":"https:\/\/www.marketriders.com\/investing\/#website"},"datePublished":"2013-10-09T21:31:06+00:00","dateModified":"2016-12-21T15:28:21+00:00","author":{"@id":"https:\/\/www.marketriders.com\/investing\/#\/schema\/person\/f2be262f5c0f3ed5ad50d6c40640ba8c"},"description":"What are index funds good for, some people ask me, if you just buy them and hold them? Plenty, I say.","breadcrumb":{"@id":"https:\/\/www.marketriders.com\/investing\/what-are-index-funds-for-in-tough-markets-plenty\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.marketriders.com\/investing\/what-are-index-funds-for-in-tough-markets-plenty\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/www.marketriders.com\/investing\/what-are-index-funds-for-in-tough-markets-plenty\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/www.marketriders.com\/investing\/"},{"@type":"ListItem","position":2,"name":"What Are Index Funds For In Tough Markets? Plenty…"}]},{"@type":"WebSite","@id":"https:\/\/www.marketriders.com\/investing\/#website","url":"https:\/\/www.marketriders.com\/investing\/","name":"MarketRiders.com","description":"How To Become A Better Investor","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.marketriders.com\/investing\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/www.marketriders.com\/investing\/#\/schema\/person\/f2be262f5c0f3ed5ad50d6c40640ba8c","name":"MarketRiders","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.marketriders.com\/investing\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/8e06113f594828daaf313d283544d566?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/8e06113f594828daaf313d283544d566?s=96&d=mm&r=g","caption":"MarketRiders"},"sameAs":["https:\/\/www.marketriders.com"],"url":"https:\/\/www.marketriders.com\/investing\/author\/support\/"}]}},"_links":{"self":[{"href":"https:\/\/www.marketriders.com\/investing\/wp-json\/wp\/v2\/posts\/7046"}],"collection":[{"href":"https:\/\/www.marketriders.com\/investing\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.marketriders.com\/investing\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.marketriders.com\/investing\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/www.marketriders.com\/investing\/wp-json\/wp\/v2\/comments?post=7046"}],"version-history":[{"count":5,"href":"https:\/\/www.marketriders.com\/investing\/wp-json\/wp\/v2\/posts\/7046\/revisions"}],"predecessor-version":[{"id":7054,"href":"https:\/\/www.marketriders.com\/investing\/wp-json\/wp\/v2\/posts\/7046\/revisions\/7054"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.marketriders.com\/investing\/wp-json\/wp\/v2\/media\/7048"}],"wp:attachment":[{"href":"https:\/\/www.marketriders.com\/investing\/wp-json\/wp\/v2\/media?parent=7046"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.marketriders.com\/investing\/wp-json\/wp\/v2\/categories?post=7046"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.marketriders.com\/investing\/wp-json\/wp\/v2\/tags?post=7046"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}