may be for you
Transcript, 2 minutes 15 seconds, for use during week of Dec.
Description: Penny, Susan and Ira discuss index funds.
Announcer: Invest Wisely comes to you from Iowa State University
Extension through a grant from the Investor Protection Trust,
providing investor education on the web at: investorprotection.org
Ira: Penny, we’ve talked about mutual
funds and I understand that they are a great choice for many
Penny: Yes, mutual funds can be a great
way to diversify your portfolio and give you access to the expertise
of professional managers.
Susan: Penny, recently I read
that although managed mutual funds may do well in any one year,
most do not consistently beat the market.
correct, Susan. And that’s exactly
the reason that many individuals prefer to invest in index funds.
Can you explain what an index fund is and how it differs from
a managed mutual fund?
Penny: Index funds don’t attempt
to pick and choose individual stocks or try to time the market. An
index fund tracks a particular group of stocks.
Susan: Can you
give us an example?
Penny: Sure. There’s the S&P
500 index, which is comprised of stocks of large companies, the
Russell 2000 index, comprised of small company stocks and the
Wilshire 5000 Total Market index, to name a few.
Ira: And an index
fund would basically see the same returns as posted by the index
Penny: Yes, minus the annual fees required to run the
fund. Generally these
will be low because there’s no need for analysts to decide
when to buy and sell securities.
Susan: What are the tax liabilities
with an index fund? Are
they similar to managed mutual funds?
Penny: Index funds are usually
quite tax efficient. Although you will be
liable for capital gains when you sell, the fund’s manager
does not buy and sell frequently so typically taxable distributions
only include dividends.
Ira: This is great information, Penny. Index
funds sound like a good option to include in my investment portfolio.
You’re welcome. And remember, for more information
visit the ISU Extension website at extension.iastate.edu and
look for ‘Invest