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Sleep Tighter With Index Stocks
As my readers know this writer, or individual investor as I call myself, is a long term stock picker. Maybe your own stocks or funds have excelled in the past couple of years. But in most cases, you've also been taking extra risk. The odds of owning just plain stocks are against you if you think that you can beat the market year in and year out. Indexing funds will keep you in the black most of the time. Indexing puts the odds in your favor, if you don't panic every time Greenspan or Abbey Cohen clears their throat. You no longer have to buy mutual funds to track the market. Index stocks are the better way to go in my book. What are index stocks? These stocks are called Spiders (SPDRs ), Standard & Poor's index of 500 leading companies. When you are buying SPDRs you are buying the entire market on a single share. What is the difference between tracking the S&P 500 and in the index share? Spiders are bought through brokerage firms, a full service broker or your own online account. A round lot would cost around $14000-15000 at today's prices. Index mutual funds, by contrast, are bought directly from the fund itself. Investment: $2500-$3000. A Spider's market price fluctuates all day, just like that of any stock. Meanwhile, mutual funds are priced once a day, at 7p.m. You buy or sell at that end of day price. You can buy and sell Spiders at any time of day, at the current market price. But in mutual funds you can't. You can play around with Spiders, just as you can with any other stocks. You can sell them short, write options against them and place limit orders. Not so for mutual funds. The S&P 500 is only one of many new index stocks. There are others that focus on portions of the S&P index, such as energy or technology; a Spider for midsize companies; Diamonds, which track the Dow Jones Industrial Average; Qubes, which track the Nasdaq index of 100 top stocks; and 17 Webs that track various foreign markets. What to do? Well, it's what feels comfortable for you. If you are truly a long term investor maybe mutual funds may be the way. If you like a little more value for your money and higher growth, than index stocks are for you. The only risk I see is that the idea of trading out of the index stocks than mutual funds. Index stocks should greatly expand the market for indexing in general, especially among the brokers and planners who charge sales commissions.
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