Investment Business Plan/Index Investments

5.0 Index Investments

Is there a place for index investments in a portfolio? Yes there is. Individuals still working and saving in 401 or 403 plans can definitely make use of index investments vehicles. Since index investments outperform the majority of actively managed mutual funds, it makes a lot of sense to reduce costs and go the index route. Even for investors saving money outside of a tax-deferred account would do well to consider adding index investments to their portfolio options.

If one goes back and reviews the original portfolio plan there are many different asset classes to populate. We have large-cap value and growth, mid-cap value and growth, small-cap value and growth, international including emerging markets, REITs, bonds, precious metals, cash etc. It is nearly impossible for one investor to be expert in all these different asset classes. Furthermore, if one is using NAIC methods for screening, selecting, and analyzing stocks, it is very difficult to find sufficient stocks to populate the value asset classes. This is where index investments such as iShares play an important role in portfolio construction.