4 Reasons to Invest in a Large Cap Index Fund

A large cap index fund is a popular investment for many individuals. This type of index fund tracks companies that have large market capitalizations in a financial index. Here are a few reasons that you might want to consider investing in a large-cap index fund.

1. Track the Market

One of the big advantages of investing in a large-cap index fund is that you can track the movements of the market overall. Historically, the stock market has always increased in value. Even though it has gone through some down periods in the short term, it always tends to bounce back. This means that if you are taking a long-term approach to investing, you can put your money into a large-cap index fund and feel relatively certain that it is going to increase in value over the long term.

2. Stability

Another reason that you might want to consider investing in a large-cap index fund is the stability of the companies within it. Large-cap companies are companies that have been very successful in their specific industries. These companies have a large number of assets, and they are generally the leaders in their fields. As an investor, you should appreciate the stability that comes with investing in these types of stocks. In most cases, you do not have to worry about these companies going out of business and devastating your portfolio overall.

3. Dividends

When you invest in a large-cap index fund, you will also be able to get returns through dividends. Dividends are cash payments that are offered to investors as a way to share the wealth. Typically, companies that are very well-established are the ones that tend to offer the most frequent dividend payments. When you can receive a dividend from these companies, it increases the amount of return that you get from the stock overall. Since your mutual fund owns many different stocks, it will receive dividend payments from all of these companies, and it will increase the value of your mutual fund shares.

4. Diversification

Another advantage of putting money into a large-cap index fund is that you will be able to diversify your portfolio. Most individual investors do not have the necessary money that it takes to be truly diversified. Many estimates say that you would need to choose at least 100 individual stocks in order to diversify your portfolio. Most people don't have enough money to buy that many stocks in any substantial number of shares. Therefore, by putting money into a large-cap index fund, you can more easily diversify your money and protect yourself from downswings in the market. If the value of one or two companies decreases, it will not have much of an impact on the performance of the index fund overall. While these funds do decline in value occasionally, they always tend to bounce back rather nicely again in the future.