Index fund investing is a popular way for people to place their money in domestic and international markets. An index fund is a type of mutual fund that is not as aggressively managed as other types of funds. Therefore, investors spend less on operating expenses because their fund does not require constant portfolio management. This allows investors to start building a portfolio that is affordable and sustainable.

Advice and ratings on index funds can come from many sources. When looking for sources that offer advice on index fund trading, make sure they are informative and reliable. You can find advice and ratings on how to trade index funds through:

1. Investment professionals that sell and buy index funds.

2. Resources that provide current and projected market information.

3. Index fund ratings.

Action Steps
The best contacts and resources to help you get it done

Find out about the top-rated index funds

To make an informed decision about investing in index funds, look for resources that provide ratings for a variety of index funds. These ratings are developed by companies and organizations that carefully study the market to project the success of a fund.

I recommend: Morningstar is an investment website that publishes annual index fund ratings for investors. Morningstar has outperformed other rating sources many times. The Street is an online investment resource that ranks the top index funds, and also lists the worst performing and most active funds.

Get ratings and advice on managed index funds from financial publications

Financial publications are a great way to find the best index funds currently on the market. These publications have a host of financial experts that watch the market and have years of experience trying to stay one step ahead of major market trends. Online and print publications often make annual or semi-annual index fund ratings.

I recommend: Financial Times has a tool that lets you compare index funds, analyze different sectors and screen index funds for your portfolio. Value Research is an online publication that offer news and trends in investing, as well as lists of its top-ranked index fund investments.

Explore ratings from index fund listings experts

Experts and fund analysts that work with the market are another source of ratings and advice for investments in index funds. You can find experts that work for private investment companies, or who work as journalists.

I recommend: Summit Investment Partners offers its total social impact, or TSI, ratings, which are particularly important to businesses that want to invest wisely in sustainable corporations. MarketWatch is a site published by the Wall Street Journal. It publishes risk information for mutual index funds, as well as rankings and index profiles. It also has a tool that lets investors compare index funds. The Independent Adviser for Vanguard Investors is a long-time watchdog of Vanguard, the king of index funds.

Index funds are a stable investment with low fees and low maintenance. They are not as fun or risky as other investment vehicles, but stable over time.

At the end of every quarter, the press releases from a lot of equities compare themselves to the S&P 500, that is the Standard & Poor's list of the 500 best stocks. In 1975 John Bogle created index fund investing with a stock index fund made up of proportions similar to the companies in the S&P 500. So when the fund is measured up to the S&P, it didn't win and didn't lose.

There are over 1,000 index funds available, but the main categories are:

1. Index funds which mirror the S&P 500.

2. Index funds that track groups of companies such as the Russell 2000 for small companies or the DJ Wilshire 5000 for the whole stock market.

3. Specific niches of funds, such as emerging markets or industrial stocks.

Action Steps
The best contacts and resources to help you get it done

Pick top-rated index funds

With over 1,000 index fund listings out there, it's hard to pick the right fund. Doing homework is crucial, and you should heed the analyst recommendations. The Vanguard S&P 500 index fund (VFINX) is the oldest stock index fund and a very popular one, but there are so many other flavors of funds that you should pick something you find interesting or something which will help make the portfolio more diversified.

I recommend: Money Magazine keeps a list of its 70 best funds, including its top rated index funds. The Vanguard 500 fund, the first-ever index fund, is among its top picks. Go right to the source as well and take a look at the funds Vanguard lists.

Learn the basics of index fund trading

It is easy to buy index funds. They are traded on the New York Stock Exchange and shares can be purchased through any online or bricks-and-mortar brokerage. You can invest in index funds through either mutual funds or 'exchange-traded funds,' which trade like regular stocks. The returns on both of these are very similar.

I recommend: TD Ameritrade and E*Trade offer free online accounts which can be used to buy and sell all funds. Most communities have a branch where you can visit a broker from a firm such as Wells Fargo.

Research to be on top of your index funds

Once you've decided to buy index funds, the hard part is following them. Knowing when to sell is the hard part about investing. Investment advisers recommend people check their investments each day. Look at an individual sector and figure out if it is good or bad for your fund.

I recommend: While Yahoo, MSN and Google have great financial sections which can be used to check on an individual investment, The Street.com is a good resource for news about the bigger picture. If you purchased a fund through Fidelity, for example, you can check your investments on its website. There are indexes that track every publicly traded stock such as the Wilshire 5000 and the top 100 stocks traded on the Nasdaq exchange, with utility stocks, biotech stocks and more.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Stay diversified. If you want index fund investments, don't pick them all in the financial sector or the bond sector. If you have an index fund investing in emerging markets, make sure you have something more stable. Spread your investments around and have them in multiple sectors so pain in one sector won't tank your whole portfolio.

Index funds are specific types of mutual fund that look to match the overall performance of a specific market index. Index funds are normally managed in a passive way. because. with the lower tax and investment expenses of index funds, most can outperform other types of actively managed mutual funds. An index fund can see this type of success, because the fund holds a larger variety of investments to get a better sample of the companies within a specific index.

Action Steps
The best contacts and resources to help you get it done

Capital gains

Capital gains (or losses) are incurred by a fund whenever the fund sells a stock. Because of yearly capital gains taxes, many funds do not invest the total amount of fund assets

I recommend: Index Funds provides information on the efficiency of these funds regarding capital gains taxes.

Passive investing

Passive investing is an investing strategy that looks for the best long-term investments. With passive investing in index funds, fund managers limit the amount of buying and selling, but still maintain a diverse portfolio.

I recommend: Investopedia provides information on how a passive approach in investing with index funds can outperform actively managed mutual funds.

Morningstar style box

The Morningstar style box is grid that breaks down stocks and funds into small, medium and large cap investments. This allows you to compare mutual funds and find the relevant index fund.

I recommend: Morningstar provides an explanation of the style box and how it works to find investment information for stocks and funds.

Statement of additional information (SAI)

A statement of additional information is a statement that provides additional financial and corporate details on the company that issues the fund. The SAI can be found through the investment company or through the Securities and Exchange Commission.

I recommend: The Securities and Exchange Commission provides a list of documents that can be requested by investors including SAIs, shareholder reports and fund profiles.

Turnover

The turnover rate of an index fund is the measurement of how long an index fund can hold on to a stock. The longer a stock is held in a fund, the fewer turnovers a fund will see. This reduces the capital gains taxes imposed on the fund.

I recommend: Moneychimp provides information on the turnover rate for index fund portfolios.

Enhanced index fund (EIF)

An enhanced index fund is one type of index fund that is actively managed. These funds are managed to beat the returns of the tracking index. EIFs sometimes provide a better return than a traditional index fund, but come with more risk.

I recommend: Dimensional Fund Advisors compares traditional index funds and enhanced index funds.

Compared to the nail-biting thrill of day trading, index fund investing is so simple and safe it’s boring–and that’s a good thing. Watch the nightly news and the anchor will comment on how the Dow and Nasdaq swooped or plummeted. These two, along with the Standard and Poor’s 500, are the big three of thousands of indices that track how markets, industries and companies have fared relative to the economy and each other. The easiest way to own pieces of your favorite companies is to take advantage of these indices through index funds.

Index funds are a form of mutual fund, an assortment of stocks or bonds of different companies. The index fund mirrors a particular index, picking companies from that index to invest in. So, the fund generally tracks right along with the index, rising and falling in the market just as the index does. It doesn’t “beat” the market, it’s not meant to, and that’s a good thing. So get boring and:

1. Learn the basics of index funds in one sitting.

2. Plan out your investment strategy and check out the top performers among index fund listings.

3. Check out index investment options for a more active role in speculation.

Action Steps
The best contacts and resources to help you get it done

Take a minute to learn index fund investment essentials

Wall Street gurus chant a mantra for new investors: 'buy index funds.' The first reason they cite is cost savings. Most mutual funds are actively managed, meaning an investment firm hires people to manage stock picks, pays for sales and marketing, advertising and more-think of all the overhead costs built into your company, then imagine your retirement fund financing those costs. An actively managed mutual fund must beat the market every year just to cover those costs; otherwise you actually lose money.

I recommend: Learn the basics of index fund investments in 60 seconds on multimedia financial services giant The Motley Fool. Then quickly peruse the Share Market Basics article comparing different types of mutual funds, to better understand the difference between an index fund and, say, a money market fund.

Maintain a safe investment record with top rated index funds

Now that you see the relative merits of safe asset acquisition, avoid the urge to gamble by using online planning tools to map out an investment strategy. As with any venture, the 'eggs in a basket' analogy holds true. Take advantage of the hundreds of index funds available and select several to invest in. This diversification approach spreads out the risk of any one index fund having a down period and dragging down your overall portfolio.

I recommend: When investing in index funds, start with the source, the company that created the concept: Vanguard Group. Compare what you find to its highly regarded competitor, Fidelity Investments.

Spice up your investment planning with index fund trading

If you think you can handle a little excitement, or feel uncomfortable with a 'set it and forget it' approach to investments, learn how to trade index funds with Exchange-Traded Funds (ETFs). These funds trade just like individual stocks meaning you can buy and sell any time the exchange is open. However, just like stocks you can lose money both by miss-timing the transaction and by racking up trading costs.

I recommend: Read the page on 20Somethingfinance for a quick comparison between ETFs and index funds. If you decide to get into ETFs, start with the granddaddy of ETFs, Standard and Poor’s Depositary Receipts (SPDR), or Spiders, that track the S and P 500–the same way John Bogle started index funds in the 1970s. Review MarketWatch for more detail.