Free Investing Guide: Winning With Mutual Funds
500 Index: One of Vanguard’s Riskiest Funds
Vanguard has a few index funds that might fit into some portfolios, but 500 Index is not one of them. The problem? It’s one of Vanguard’s riskiest funds!
Vanguard will never ever tell you this, but 95% of the 500 Index can go up, and you can still lose money.
Surprised? Here’s a simple, yet shocking example. Say…
- The smallest 100 stocks go up a robust 25%.
- The 4th 100 largest go up 20%.
- The 3rd 100 largest go up 15%.
- The 2nd 100 largest go up 10%.
- The next 50 largest go up 5%.
- But the 50 largest stocks go down 10%.
What do you suppose would happen to your 500 Index money?
Feeling good about the answer? Sorry to say, you’d be shocked silly. Even though 95% of the Index 500 stocks went up nicely, you’d still lose 1.8% of your money.
And if all but the 50 largest stocks continue to gain over the next 15 years, you’d continue to lose money the whole time.
That’s not how you build wealth. That’s not going to help anyone’s retirement. And that’s not what you had in mind when you invested in the 500 Index, is it?
Well, the same strategy and consequence holds true for most index funds. No surprise, but this year could be the worst for index funds. If you’re looking for capital appreciation and you’re indexing to get it, you could be on your way to losing a big chunk in profits.
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