Judging the Performance of an Index Fund
How long is this thing going to take? And how do you know if your index funds are doing well?
Let's just say…don't start shopping at dealerships just yet. Like a lot of investments, index funds are a long game.
How well your funds are doing will depend on how the market is doing. In 2008, it was looking like your buddy Matt after a five-day bender, so if your funds were up 10%, you were doing incredibly well. In 1998, the market was exploding like Beyoncé's career, so that 10% increase would probably make you feel like a chump.
With time, the equity or stock market climbs. How it climbs depends on when you enter the market and how long you stay in. If you get in just before the market tanks faster than a James Franco performance at the Oscars, you're not going to be very happy with index funds. If you invest for decades, though, you'll be able to see the market head upwards again.
What you invest in matters, too. If you're investing for decades and don't expect to cash in your investments until you're grey and old, you can buy small cap funds. They go up and down in value more but they also tend to grow more over the long term than large cap funds. If you don't want to wait a long time to see your money grow, muni bond funds will grow less but won't take you for a wild ride.
No matter what you invest in, make sure you're looking at the right numbers. If you're buying into bonds, for example, make sure that you compare your growth to that of world markets and other bonds. If you're investing in tech, consider what's going on in the tech world now and what forecasters predict for the future of tech.
Pin that car dealership brochure on your fridge, but stay in the game. You want to give your funds a chance to grow. And hey, by the time you might want to cash in your funds, people might be floating around on hovercrafts instead of cruising in Maseratis.