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In: Finance

Experts often suggest investors start with mutual funds, especially index funds. Do some research about mutual...

Experts often suggest investors start with mutual funds, especially index funds. Do some research about mutual funds and explain whether this advice makes sense to you or not.

Solutions

Expert Solution

it is often advised to start with index fund because index fund is a passive fund and it is often seen that in a longer time frame, passive investment have always beaten the active investment.

Passive investment is majorly forecast at investment into the same proportion as that of the index so the rate of return will be similar to that of the index and it would be helpful in generation of a rate of return that will never underperform the market so index investing is preferred at the initial stages because it would be helpful in risk minimization and generation of a rate of return that will never underperform the market.

when one is a beginner in the market, he should not be taking too many risks and he should always be trying to to learn through benefits of diversification and index funding is a better approach because it is helpful in maximization of Return through passive investment. The cost of investment through index funds is also lower.


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