Index funds have been on my mind for a while. A few years ago, I was talking to my family about investing and index funds came up as an easy way to start.
Index funds are groups of securities like stocks or bonds that you can invest in to get a bigger chunk of the market in your portfolio.
I had index funds in mind when I opened my brokerage account; I made sure that my broker had a good amount of no-transaction-fee mutual funds available. Index funds seemed like a great place for me to start investing, since I’m not yet comfortable investing at the individual stock level. I could get what I needed to diversify a portfolio with just a few funds, instead of trying to identify 20 stocks that would serve a similar purpose.
However, once I actually started to look at index mutual funds, I quickly descended into panic when there were so many barriers to entry: Minimum purchase amounts, especially for the socially responsible funds I was interested in, were sky high; there were institutional funds that I wasn’t sure I could even invest in as an individual (I found out that it depends on the fund); and there were funds that weren’t even open to new investors.
I used AAII’s Fund Screener to try and find something that would work for me but soon I was overwhelmed by all of the metrics I needed to apply to find what I was looking for. Which index should the fund be following? How can I find a fund that is actively socially responsible and not just investing in big corporations that happen to not, at this point in time, be treating the earth like a hotel? And how do I sift through the mammoth amount of 24,000+ mutual funds available to begin with?!
After about a week of screening and researching, I decided to take a step back.
This is essentially online clothes shopping but for index funds, so I tried to narrow my search to find the ones I like in my size. But I don’t want to force myself to fit into anything, and I definitely don’t want to invest in something that I don’t understand. I want to follow a strategy that doesn’t require any emotional breakdowns in the process!
One day when I’m more entrenched in investing, I’ll revisit index mutual funds. But for now, I’m going to focus my attention on index exchange-traded funds (ETFs). There are no minimum purchase amounts attached to these, and there are only about 2,700 ETFs to choose from, which should help narrow my search immensely. I’ll report back on how it goes!