An Investment Strategy For A Double Dip Recession

Everyone is talking about the possibility of a double dip recession.  Some experts and economists are saying that the recovery that we have seen was artificial and won’t be sustained.  They are also saying that grow will constrict again.  Here is an investment strategy for any kind of recession, double dip or not.

The best way to invest if you are worried about a double dip recession is to invest in index funds instead of buying stocks.  This is the best way to grow your money over time, a long period of time.  Here is why.

Historically, the US stock market has grown overall and over time.  In the long run, the US economy is a great bet.  In fact, some would say it’s as close to a sure bet that you can get.  In order to capitalize on that growth, the best way to do that is with index funds.

Index funds track a particular index, like the S&P 500 or Dow Jones Industrial Average, both of which pretty accurately reflects the larger US stock market overall.  Others, like small cap index funds, will track small stocks that have potential to grow.  These are called passively managed funds because there isn’t a wizard behind the curtains pulling the strings.  Instead a computer is automatically picking the stocks based on the index that it is tracking.

The whole idea behind index funds is that you are growing with the market instead of trying to beat it.  Research has shown that mutual funds that try to beat the market fail over time.  In addition, only a few fund managers actually perform well in the long run as well.

Only some 20 percent of fund managers beat the market every year.  The thing is that the managers in the 20 percent change every year as well.  So predicting which money manager will perform well and which one won’t is a little bit like stock picking.

Index funds are cheap to boot.  They are passively managed, usually by a computer software package, which makes it cheap to operate.  That also brings the management fees down as well.

You can also find many index funds in the form of an exchange traded fund, also known as ETFs such as biotech ETF.  These may be even cheaper because all you do is pay the normal trading commissions on them.  You trade them like you would any other stock.  In addition, there are no restrictions on when you can buy or sell them like you would for mutual funds.

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