Index funds: Best for most

Many of us have money we want to invest for our futures, but we don’t have the time, skills or interest to learn all about investing, study stocks and decide when to buy and sell them. That’s OK, though, because there’s a very effective way to invest longterm dollars that’s easy, too: index funds.

Index funds have long outperformed professional money managers -- in large part due to the fees managers charge. So instead of investing in actively managed mutual funds that lose to the market, you can choose to roughly match the market average. Invest your long-term money in index funds designed to track the performance of a broad market index, such as the S&P 500 or the Dow Jones Wilshire 5000. The S&P 500 is an index of 500 leading companies in America, and you can invest in it through many funds, such as the Vanguard 500 Index (VFINX) or the SPDR S&P 500 ETF (SPY).

The Dow Jones Wilshire 5000, a “whole market” index, contains almost every U.S. stock, and there are even broader indexes, such as the FTSE Global Equity Index, which includes more than 7,400 securities in 47 countries and tracks about 98 percent of the world’s investable market. Investments such as the Vanguard Total World Stock ETF (VT) will quickly park you in that index’s components.

Index funds usually sport extremely low fees -- often near or below 0.1 percent, while many managed mutual funds charge 1 percent or more. There’s little turnover within them, too, so commission costs are minimal.

Best of all, investing in index funds is simple, taking very little time or energy. Once you’ve invested in them, you can forget about them (ideally adding money regularly, though). However the index performs in the coming years, your index fund will roughly track that -in the case of broad-market index funds, delivering returns that roughly track the overall market.

Learn more in John Bogle’s “Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns” (Wiley, $25).