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While this has been a proven strategy, personal finance guru Jaspreet Singh has some words of caution.
There are two ways for CEOs of publicly traded companies to keep their stock value high.
The first way is to grow the company.
An index fund bundles many stocks together, meaning you become a part owner in all those companies.
Index funds are passive, meaning no manager decides which stocks to buy and sell.
However, what most people dont realize is that youre also buying into companies youve likely never heard of.
Its also a better option for some, depending on their investment goals.
Cash flow is important to Singh, so he targets funds that will pay him every three months.
Other investors may invest with the goal of their investment appreciating over time.
Either way, knowing the risks before putting money into an index fund is vital.
First, youll want to know the industry the index fund tracks.
Index funds cover a range of industries, from real estate to healthcare to technology.
You want to invest in an industry that you expect to gain value over the next decade.
Thefees and expensesyoull pay are another important aspect to consider when choosing an index fund.
Each fund has different costs, which get automatically taken out.
In most cases, the fees associated with index funds are much lower than those ofmutual funds or ETFs.
However, its still a good idea to know exactly how much youre paying the fund.
Finally, Singh explains that you oughta check the holdings, or companies included in the fund.
double-check youre investing in companies you actually want to be part of and believe will grow in value.
Additionally, different funds will weigh their holdings differently.
However, Singh explains that the way many people invest in index funds is wrong.
Those who take some money, put it into a fund and leave it there wont build wealth effectively.
Instead, Singh advises investors to build apassive investing system.
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