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Index funds mimic a certain market average, e.g. the S&P 500 or the NASDAQ. If you cannot find mutual funds that have low expenses, fees and taxes and your main desire is to have less overall expenses index funds are a great option. Almost all index funds will have expense ratios below 0.50% and other might be as low as 0.10%. There are less tax issues as well becuase they are passively managed and rarely have trades. If you want to outperform an index then you will need to look at funds that are actively managed.

We have spoke many times of the importance of diversification when investing. Adding bonds to your portfolio can help lower risk without sacrificing return. For example, if you had a portfolio of 50% stocks and 50% cash. By adding bonds to this particular portfolio so you have 35% stocks, 16% cash and 49% bonds over a long time horizon will give you a better risk and return trade off because you will have the same performance with a lower level of risk.

The last few days the stock market has taken a hit, although it did recover a little on Friday. This is happening because people on Wall Street are concerned that the Federal Reserve will continue to hike up the Fed Funds Rate which many believe will grind the U.S. economy to a halt. Now if you were diversifed in your holding before the down trend this week you are probably doing o.k. despite the volitility. As discussed before market timing is difficult and you never know if this is the beginning of a long bear market or not. But you can still invest wisely in a down stock market. You need to do some research and find companies that have had positive earning reports (a financial statement that gives operating results for a specific period) recently and have been hit the hardest by this downtrend in the stock market. If they are a best in brand (best company in their sector) this might be an opportune time to invest because the price currently does not reflect the true value of the stock.