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Warren Buffett has an simple way for everyday investors to get rich

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NSYou’ve probably heard time and time again that investing in the stock market is a distinguished way to grow riches over time. But investing in stocks also takes time, tolerance and skill.

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After all, you can’t randomly pick stocks out of the hat and hope for the best. Instead, you will need to put together a diverse mix of lofty-quality companies with powerful growth potential. This is something that will require a lot of research.

Or, there is a simpler way to start building a solid investment portfolio that will serve you well in the lengthy run. In fact, famous investor Warren Buffett believes that a positive type of investment can be the average person’s ticket to making a lot of money. That’s what it is.

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Welcome to Index Funds

Many people who purchase stocks do so on an individual basis. With index funds, you can own a whole range of distinct stocks with a single purchase.

But what are index funds anyway? In short, they are passively managed funds that aim to match the performance of the associated market indices.

Some mutual funds are actively managed, which means they are managed by actual people whose job is to accumulate a rewarding mix of stocks. Index funds do not have this setup – they are based on existing indexes, not on the decisions of specific people. But that’s a pleasing thing, because that actually keeps investment fees low.

So how can an index fund work in practice? Suppose you purchase shares Standard & Poor’s 500 index funds. This means that you will actually get 500 distinct shares. If the S&P 500 itself had a distinguished year, the value of your portfolio would go up. Simply.

Now to be clear, there is a downside to buying index funds, which is that you don’t get an opinion on the companies you invest in. Also, index funds will not aid you beat the market. For example, an S&P 500 index fund will not seek to do better than the S&P 500 itself, but with the right investment mix, you may be competent to do better.

But do you really want to take the risk? As an average investor, you may not have the skills to choose stocks that will outperform the wide market. that’s pleasing. In fact, it is precisely for this reason that Warren Buffett believes that most investors can benefit from index funds.

Now that I have said that, it is often the case that wealthy individuals like Buffett do not own index funds themselves. There are several reasons for this. First, the wealthy can take on more risk in their portfolios, so they may instead choose to pick individual stocks. The wealthy can also diversify out of stocks by buying real estate and other assets that require access to cash.

Furthermore, Buffett himself is a seasoned investor with an impressive track record, so he’s the considerate of person who doesn’t need index money because he has the knowledge to choose companies to invest in. But if you don’t have that knowledge, index funds are a distinguished backup option – one that could end up making you very wealthy over time.

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The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.


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