Index Funds in a Down Market: Now May Be a Good Time to Get in to Index Funds

One of the things that proves humans are irrational is how everyone tries to get out of the stock market during times of economic slowdown. They've heard the adage "buy low, sell high," but it doesn't seem to apply in uncertain economic times. However, now is not the time to abandon the stock market altogether. Now is the time to make some carefully thought out investments.

I, personally, like index funds.

What are index funds?

Index funds are mutual funds that follow all of the stocks listed on a particular stock index. You can buy index funds that invest in all of the companies on the S&P 500 stock index. You can go wild and invest in the Wilshire 5000 (all the stocks). You can choose sectors (like a real estate index or the Russell 2000 small business index).

The idea is that you benefit because you are automatically diversified in your investments, and you get the benefits associated with investing in an overall index.

Why index funds can be a solid investment choice in a down market

Index funds can be a solid investment choice in a down market because they have the risk spread out amongst the stocks listed in the fund. They, of course, can lose in value, but this happens rarely over the long run. Depending on the index, average returns can be between 8 percent and 11 percent with index funds. Often, index funds beat the performances of actively managed mutual funds (and you pay fewer fees with index funds to boot).

And, right now, when the market is generally a down market, you can get more shares. This is a great thing, because the lower prices mean that you can buy more shares. Later, when the market recovers (as it does over time), you will get more money because you will have more shares to sell. This is a classic opportunity to pad your investment portfolio.

Now, it is true that index funds aren't generally noted for their "sexy" returns. But if you are worried about investing, and the down market, they could make solid choices for investment portfolio. Index funds are also great for beginners.

Disclaimer: I am not an investment professional. This should not be taken as investment advice. You always have the risk of loss in investment, and you make investments at your own financial risk. Before making an investment decision, consult with a professional and/or do your own research.