By Samuel Taube
Usually, if you call someone lazy, it’s an insult. But in finance, it’s actually a compliment.
That’s because passive investors prefer “set it and forget it” investment strategies that focus on market index funds. And those strategies work really well.
Beating the market is difficult. Betting on it instead is often both easier and more lucrative.
However, many “lazy investors” are missing out on the full potential of a market index-focused strategy. That’s because too many people invest in the same few cookie-cutter index funds.
There’s more to life than S&P 500 ETFs and bond funds. With a little digging, you can find index funds that offer higher returns for equally low effort.
Let’s learn about some of the best market indexes you’ve never heard of…
Dividend Funds
Dividend-paying stocks aren’t usually very exciting. They tend to be big, stable household names like Coca-Cola (NYSE: KO) or Kimberly-Clark (NYSE: KMB). These stocks don’t move around enough to satisfy active day traders.
But if you hold on to them for many years and reinvest their dividend payments, you’ll gradually buy more and more shares. And that means that the returns can stack up to crazy heights.
That’s the strategy advocated by our Chief Income Strategist Marc Lichtenfeld. He literally wrote the book on dividend investing.
Marc’s system automatically reinvests payments from big, reliable stocks that raise their dividends every year. It’s the perfect fit for a lazy investor.
But if that’s still too much work, then you should look into some market indexes that contain good dividend stocks. Two of the most popular ones are the Vanguard Dividend Appreciation Index Fund (MUTF: VDAIX) and the T. Rowe Price Dividend Growth Fund (MUTF: PRDGX). Both have had respectable returns over the last year.
Small Cap Funds
The one problem with the big, stable dividend payers is that they don’t generally grow much. Some lazy investors don’t want to bother with income stocks. Maybe you want to grow your money in value stocks instead.
Small caps are, as the name implies, smaller stocks that are early in their life cycles. You can get incredible returns if you pick the right ones. But they also face considerable risk compared to the more boring blue chips. Many young companies fail. Thus, small cap stock picking is not a good choice for passive investing fans.
However, the right small cap market index can give you exposure to this high-growth sector without too much risk. Two time-tested market index ETFs are the iShares Russell 2000 Index ETF (NYSE: IWM) and the SPDR S&P 600 Small Cap ETF (NYSE: SLY). Once again, both were up by decent margins in 2016.
Emerging Market Funds
A few paragraphs ago, we discussed how big dividend-paying companies are very reliable but don’t grow much. Meanwhile, volatile small caps grow very fast but are more disaster-prone. This logic doesn’t apply to just individual stocks and funds… it also applies to countries.
It may not feel like it from here, but the U.S. economy is very resilient. Even during the worst financial crises, our GDP shrinks by only a couple percentage …read more
Source:: Investment You
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