Investor Education: 12-Step Program to Index Funds

A recent study of 401k plans highlighted the Causes of Low Returns for 401k Plan Participants:

The low returns also reflect a number of inherent failings in 401(k) plans as currently structured, involving participants, plan sponsors and the law. Problem: Lack of Knowledge. Several studies find that many participants in defined contribution plans have an appalling lack of understanding of basic principles of investing. For example, a recent national survey of participants found:

Respondents generally considered company stock less risky than a diversified domestic equity portfolio.

44 percent thought money market funds included stocks and 43 percent thought they also included bonds.

Nearly 20 percent didn't know they could lose money in equities.

65 percent didn't know they could lose money in a bond fund and

60 percent didn't know they could lose money in a government bond fund.

Small wonder that so many participants in 401(k) plans have little or no grasp of the principles of prudent investing! They may have a limited or extensive list of funds from which to choose, but they base their selection on individual funds rather than investment strategy. The fund offerings may not stress the value of index funds, which invest in the stocks or bonds used to compute a particular index and have low management fees because they are not actively managed. Participants take too little risk, as in the case of those letting most of their assets stay in money market funds or cash, or too much risk, as in the case of those putting the great majority of their assets into high-tech stocks or funds. Many participants have an appalling lack of understanding of basic principles of investing.

Most investors need a better understanding of how the stock market works and how risk, return, and time are related. Our 12-Step Program to Index Funds provides a complete explanation of the most prudent and efficient way to invest your hard-earned money. You can read only the introductions to each step, or you may want to get more information on each topic by clicking the "more info" buttons at the end of each introduction. If you have any questions about the information presented, please call an Index Funds Advisors, Inc. at 888-643-3133. Now please start reviewing our education program by clicking here.

In addition, you may want to view this 28 minute video that explains how the stock market works.  How the Really Smart Money Invests.

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