Index funds are an excellent strategy for the passive investor. Rather than constantly researching and picking individual stocks as an active investor, passive investors buy index funds and ETFs that track entire markets. For example, an active investor tries to 'beat the stock market' by choosing only the stocks that he/she thinks will perform well over time. The active investor will then sell stocks when he/she feels that a particular stock is not going to perform well in the near future. This requires constantly researching, monitoring and buying/selling of stocks that occupies a signficant portion of one's time. And this in a world where there is never enough time! The other issue with active investing is that 'beating the stock market' has been proven to be a losing game. Timing the stock market by selling stocks when they are their peaks and buying when they are at their lows is a very difficult task. A combination of skill and luck is required to beat the stock market that not many will have. To add to this, every time that a stock/fund is bought or sold, there will be charges associated with the transaction that goes to the broker (e.g. TD Waterhouse is a popular brokerage in Canada). Well, there is a solution to this dilemna. The solution is passive investing through index funds.
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