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Along For The Ride

On the stock market highway, index funds put your money on cruise control.

To index or not to index? In the financial markets of the '90s (the recent market correction notwithstanding), where some investors seem to think that double-digit returns are a right, many question not whether they should invest in an index fund but whether to invest in anything else.

In search of the highest returns, fans of index funds would point out that figures don't lie: According to statistics generated by Kevin McDevitt, mutual fund analyst at Morningstar Inc., for the past three years, the S&P 500 Index landed in the top 7 percent of all large-company funds; for the past five years, the top 7 percent; for the past 10 years, the top 13 percent; and for the past 15 years, the top 8 percent. Although past performance is no indication of future returns, don't think investors haven't noticed the results: Over the past five years, they've poured billions of dollars into index funds.

Although these funds may have a place in your portfolio, before you become complacent, understand where your money is going. There's a lot to know about index funds.

Lorayne Fiorillo is a financial advisor and first vice president of investments at Prudential Securities Inc. Past performance is no guarantee of future returns. For more information, write to Lorayne in care of Entrepreneur, 2392 Morse Ave., Irvine, CA 92614.

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This article was originally published in the November 1998 print edition of Entrepreneur with the headline: Along For The Ride.

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