Risks Associated with Investing in Index Funds

Les Szarka, CEO at Szarka Financial Planning & Investments, sat down with Fox 8 News to discuss investing in index funds. The major takeaway Szarka cited is to be wary of fancy marketing ploys for index funds.

Related: Are Index Investors Allocating Capital Properly?

Points discussed:

  • Index funds are not a type of investment; just a way to invest
  • Index funds provide a passive form of investment–purchasing the S&P 500 versus individual stocks
  • Index funds provide more diversification and cost-effectiveness
  • Be wary of marketing regarding index funds
  • Index funds are cap-weighted, so an investor may not be as fully diversified as they think they are due to concentration in a specific stock
  • Don’t fall into the typical marketing trap of “low cost, low risk”
  • Investors should perform their due diligence prior to investing in an index fund

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