A major benefit of index funds is that they're low-cost. That's because they don't require much effort to manage: You just purchase the index and let it do its thing instead of following, buying and selling shares in particular companies.
Index funds are also tax efficient because they don't require much trading. Managers are "not constantly buying and selling within that fund," Holeman says. "Anytime that you do a lot of buying and selling, there's the potential to cost yourself a lot in taxes."
That can translate to more money in your pocket. Because you aren't paying an advisor as much as you would for actively managed funds, you're probably saving money in fees that could cut into your returns, Holeman says.
Another advantage to index funds is that they aren't tied to the success of a single entity.
"The trick is not to pick the right company," Buffett told CNBC's "On The Money" in 2017. "The trick is to essentially buy all the big companies through the S&P 500 and to do it consistently."
Remember, diversification is key. Always make sure that you're doing your homework, and consider working with a financial professional (as long as they're a fiduciary) to craft a investment plan that makes the most sense for you.
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