Hard to beat index funds

Great wealth can be amassed through investments in the stock market, but don't jump in if you don't know what you're doing or you don't have the time, skills and inclination to study lots of companies, deciding when and if to buy into or sell out of them.

Fortunately, there's an easy — and effective — way to invest in stocks that requires very little time or knowledge: index funds. An index fund is a mutual fund (or an ETF, an exchange-traded fund) that tracks a particular index of securities. It holds roughly the same securities as the index does and thereby aims to deliver roughly the same return as the index (minus fees).

So an S&P 500 index fund will track the S&P 500 by holding most or all of the stocks in the index. The S&P 500 includes 500 of America's biggest companies, from Apple and Amazon.com to Campbell Soup and Hasbro. Invest in an S&P 500 index fund, and you'll instantly be a part-owner of hundreds of strong companies, with your wealth growing as theirs does.

Many index funds have extremely low fees, too, so they can perform just about as well as their underlying indexes. The SPDR S&P 500 ETF (ticker: SPY), for example, charges just 0.095% annually, or about $9.50 per year for every $10,000 you invest in it.

Best of all, you won't sacrifice much performance with index funds: The overall stock market has averaged annual returns close to 10% over many decades (though over a shorter investing period your return is likely to be higher or lower). Over the 20 years ending in the middle of 2022, fully 95% of all U.S. large-cap stock funds underperformed the S&P 500, and over the previous 10 years, 90% underperformed. The news isn't better for smaller companies: Among U.S. smallcap stock funds, 94% underperformed their benchmark index (the S&P 600) over the past 20 years.

It's hard to beat index funds — and you can probably invest in them via your 401(k) or an ordinary brokerage account.