Choose Index Funds as a Long Term Investment

For young investors these days, there are a wealth of indicators out there that may dissuade them from almost every long-term investment vehicle available. We are told that Roth IRAs can be a bad investment. We see the stock market turning into a roller coaster that is no more predictable than the outcome of the European debt crisis. We hear that any collective savings fund, most notably Social Security, will be long dead and buried by the time we reach retirement. We realize that real estate may no longer be the most prudent investment. And we know that the growing popularity of CDs and Treasury bills translates into lower rate, even long-term.

So what to do? Where to invest? For those of us who are in our twenties and entering the working world under the cloud of economic recession, we certainly want to start putting our savings aside and investing in our future. But every investment vehicle has some glaring faults at the moment.

If we’re investing long-term we want to be thinking long-term, so perhaps a better question would be: which of these currently-unappealing options will recover well and provide the best combination of low-risk and high-return over the course of decades?

History tells us that the answer to this question is an investment in the stock market. Even though the market has been wildly unpredictable as of late, and even though it has gone through decade-long periods of stagnation in the past, the stock market has never failed to gain over time. As the world population continues to grow, developing countries continue to develop, and new industries and cultures rise to prominence, there is little doubt that the market – as an indicator of the overall economy – will show vibrancy over the next half century.

But it is important that your investment in the market is adequately diversified so as to reflect its role as an indicator of the global economy. Here is where index funds and ETFs come into play: rather than buying stocks you deem strong and profitable, switching between solar energy firms, tech stocks, and financials as the market dictates, your best long-term bet is to invest in the economic system as a whole. This means buying no-fee index funds that capture the full system – funds that track the S&P 500, for example, or funds that provide a snapshot of the London Stock Exchange.

Buying index funds allows you to invest for the long-haul without to constantly check your portfolio or worry that you won’t gain value over time. Doing so allows you, despite the current market conditions, to start saving for retirement at the most opportune time in your life – the present.