Use Index Funds

Index funds are often low-cost mutual funds that seek to mirror the performance of a broader market index, before the deduction of fees.

Years of investment research show that most active managers — those who buy and sell securities in hopes of picking winners and beating the market's return — rarely beat most market indexes over time*. Yet these same managers almost always charge higher fees than index funds. When you factor in the lower fees charged by index funds, indexing is a more effective way to invest.

Why buy index funds?

Index funds offer a broad range of benefits including:

Simplicity — Index funds have a precise, easily understood objective - to track the performance of a specific stock or bond market index.** With index funds, you always know how your money is being invested.
Lower costs — Index funds tend to have lower costs than other mutual funds since they are less complicated to operate and require fewer employees to support. As a result, they can pass on a higher percentage of their investment returns to shareholders.*
Diversification — Index funds typically hold more securities than actively managed funds, offering the potential for increased diversification, which can reduce the risk posed by a dramatic decline in any one stock or sector.***
Competitive performance — Thanks to their low costs and broad diversification, index funds may be an effective way to achieve competitive returns over the long run.
Tax advantages — Because there is relatively little portfolio turnover in an index fund, there is less potential for the taxable capital gains that you might find in an actively managed fund that frequently buys and sells securities. You should note, however, that rebalancing may result in a taxable event.^

*Malkiel, Burton - The Random Walk Guide to Investing 2003

**Indexes are not available for investment and do not reflect fees, brokerage commissions or other expenses of investing.

***Diversification reduces risk but does not eliminate it.

^AARP Financial Inc. does not provide tax advice. Please consult a tax advisor for information pertaining to your particular situation.

The mutual funds described in this site are sold only to U.S. residents.

An Investment in the Funds involves risk, including possible loss of principal. Please consider the investment objectives, risks, charges and expenses of the AARP Funds carefully before investing. The prospectus contains this and other important information about the Funds. To get a prospectus containing this and other information, click here (PDF) or call 1-866-218-6142. Read it carefully before you invest.

While AARP has licensed the use of its name to AARP Funds and endorses the services provided by AARP Financial Inc., AARP does not offer financial products or services itself and cannot recommend that you or any specific individual should purchase any particular product or service. AARP Financial Inc. is an investment adviser and a subsidiary of AARP.

The Financial Advisors are registered representatives of ALPS Distributors, Inc., a registered broker-dealer, and as investment adviser representatives of AARP Financial Inc., an investment adviser. AARP Financial Inc. offers investment advisory services and is not affiliated with ALPS Distributors, Inc.

AARP Funds are distributed by ALPS Distributors, Inc.