Three Core Principles to Consider When Investing in Index Funds

Index funds have been a popular investment choice for long-term growth due to their low costs and potential for outperforming actively managed funds. If you’re considering investing in index funds, here are three core principles to keep in mind:

1. Philosophy: Decide whether you want to outperform the market or simply own a portion of it. Research shows that over long periods, owning the entire market outperforms trying to outperform it.
2. Strategy: Once you’ve decided on your philosophy, construct your portfolio based on your available options. This may include a US stock index fund, an international stock index fund, and a bond index fund.
3. Discipline: Maintain your philosophy and strategy over the long term. Adjustments may be necessary as your life circumstances change, but the overall strategy should remain consistent.

When choosing an index fund, consider factors such as expense ratios, target market segments, and your investment goals. Look for broad-based, total market index funds with low costs to help mitigate risks and align with the investment philosophy of industry pioneer John C. Bogle.

Remember, the goal of investing in index funds is not to outperform the market but to capture a fair share of its returns over the long term.