What to Look for in a Solid Index Fund
Index funds are an easy way to get started investing. We’re fans of a simple set-and-forget portfolio that can be set up once and benefit from over time, and index funds are the backbone of this type of investing. When it comes to picking one, Consumer Reports offers several features to consider.
We’ve told you all about how to get started with index funds , including how to pick one, but Consumer Reports makes some important points about what to look out for. The fees are obvious, and most index fund fees (or expense ratios ) are extremely low at less than 0.1 percent.
You should also consider the fund tracking error. They explain:
This number shows how much the fund’s performance reflects the index. Funds can deviate from the S&P 500 for a number of reasons, including fees charged by the fund. But Brian says experience has shown that tracking error should be close to the fund’s expense ratio.
You can find this information on Morningstar.com , Yahoo Finance, or Google Finance by looking at a fund’s performance and then comparing it to the index it should reflect. Consumer Reports has more details on what to look out for, so check out their full post below, and for more information on how to get started, check out our tutorial.
How to Choose an S&P 500 Index Fund | Consumer reports