Index and Mutual Funds – Key Differences The Quincy Group

While an index fund and a mutual fund may appear identical on the surface, there are numerous key differences between them that might be vital to your retirement portfolio. Both index funds and mutual funds diversify assets, and they are typically invested in a basket of stocks that aims to meet certain investment goals.

Overview of Index Funds

An index fund tracks a certain list of securities, such as the Dow Jones Industrial Average or S&P 500 indexes, based on certain criteria. The Dow Jones index tracks 30 blue-chip (some of the largest companies in the country that are important to the United States economy) industrial and financial companies in the United States. The index is used by the media to gauge the economy and stock market as a whole.[1] There are many other indexes that track different stocks or securities and have different criteria for companies to get added or dropped from them.

An index fund is an investment product that offers you the opportunity to buy a basket of stocks that tracks an index. Index funds may hold stocks tracked on an index, but often vary in how each stock is weighted. Sectors or stocks may be screened out or favored in certain technical or fundamental ways to achieve a specific investment goal.

Overall, Index funds simply track the market in some form or another with less of a focus on “beating” the market.

Mutual Funds Are Different Than Index Funds

An investment manager can select a variety of securities to invest in via mutual funds. Index funds are often less costly than mutual funds, but they offer a wider range of opportunities. In addition, a mutual fund’s objective is to meet a specific investment goal and outperform the market. Therefore, mutual funds are actively managed funds, whereas index funds are passively managed, altering only based on stock indexes, not manager decisions.[2]

In general, index funds outperform mutual funds over the long term, especially when fees are taken into account. However, those fees may be worth it when specific investment risks are covered, and goals are met. In addition, you may benefit from increased diversification and flexibility.

If you’re interested in optimizing your retirement to fit your financial goals, sign up for a complimentary review with us today.

**INFORMATION PROVIDED IS FROM SOURCES BELIEVED TO BE RELIABLE HOWEVER, WE CANNOT GUARANTEE OR REPRESENT THAT IT IS ACCURATE OR COMPLETE. NO STATEMENTS MADE SHALL CONSTITUTE ANY FINANCIAL, TAX, LEGAL, OR ACCOUNTING ADVICE. ANY HYPERLINKS PROVIDED ARE AS A COURTESY AND SHOULD NOT BE DEEMED AN ENDORSEMENT**

Securities and advisory services offered through Royal Alliance Associates, Inc. (RAA), member FINRA/ SIPC. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA. RAA is not affiliated with Lone Beacon

Neither the named representative nor the named Broker/Dealer or Investment Advisor gives tax or legal advice.

Fixed index annuities are designed to meet long-term needs for retirement income. Early withdrawals may result in loss of principal and credited interest due to surrender charges. Distributions may be subject to ordinary income tax and, if taken prior to age 59 ½, an additional 10% federal tax. An income rider or benefit (sometimes called Guaranteed Lifetime Withdrawal Benefits, or GLWB) is an additional feature available with some annuities and generally optional and come with additional cost. Income benefits are designed to provide income options above and beyond the standard annuitization or free withdrawal features in annuities. All contract gains beyond the CAP rate are surrendered to the insurance company to pay for the expense of the product.

The views expressed are not necessarily the opinion of Royal Alliance Associates Inc, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Individual circumstances vary. Investing is subject to risks including loss of principal invested. No strategy can assure a profit against loss.