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Probably the safest investment strategy for investing in the stock market is the S&P 500 Index Fund. This fund contains the stocks of 500 different companies so you are well diversified. And with so many companies in the mix, if a few falter, there's plenty more to pick up the slack.
Another advantage of investing in this type of fund is that you don't have to research or make any buy/sell decisions on a company by company basis. The fund manager handles everything. Basically this fund invests equally in the 500 companies that make up the index. As companies are dropped from the index, that stock is sold and replaced by the stock of the new companies that are added.
Year in and year out, the S&P 500 Index has outperformed 80 to 85 percent of all mutual funds. So why gamble on trying to find one of the 15 to 20 percent that might do a bit better? With the S&P 500 Index Fund, the odds are in your favor and that's the way we like it. These funds have averaged over a 10% annual rate of return for the last 50 years or so. And though there's no guaranty it will do the same again, it does give us a historical prospective on which to base our decisions.
Just a Note: Those folks who are either currently retired or close to retiring may want to consider using an investment vehicle other than the stock market. Although we minimize risk by using index funds, short term down-turns can have a serious effect for those depending on the money to meet everyday living espenses. If you are in this situation, you might want to consider U.S. Treasury Issues or Triple A-Rated Bond Funds.
Next we'll take a look at our other investment vehicle, Mutual Funds.
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