I just noticed that index fund investing is getting more attention among investors—especially those who want to start investing but don’t know where to begin. In fact, it’s a very good option for people like this because it has low costs and relatively stable long-term returns.

An index fund is a mutual fund that uses passive management. This means they do not try to select stocks in order to beat the market; they simply invest in all the stocks that make up the underlying reference index, such as the S&P 500, which includes the first 500 large-cap stocks in the United States, or the SET 50 of the Thailand Stock Exchange.

What makes index funds popular is cost efficiency. In particular, management fees are much lower than those of Active Funds because there’s no need to hire stock analysts or carry out complicated stock selection. In addition, a SPIVA study in 2018 found that 82% of Active Funds investing in U.S. stocks were unable to outperform the S&P 500 over a 5-year period, which shows that passive investing tends to perform better in the long run.

Another advantage is diversification of risk. When you invest in an S&P 500 index fund, it’s like buying 500 stocks at once, which greatly reduces the risk of picking the wrong stocks compared with active investing, which may lead to concentrated investment positions. Even Warren Buffett himself recommends that beginners invest in index funds, emphasizing consistent investing and holding for the long term.

For a concrete example, The Vanguard 500 Index Fund, established in 1976, is considered one of the most well-known index funds. In 2019, it returned 31.46%, while the S&P 500 index itself returned 31.49%. This close performance demonstrates how efficiently the fund is managed.

That said, we also have to admit that index funds have some limitations. For example, you have to invest in all the stocks in the index, whether you like it or not. Most importantly, you won’t have the opportunity to earn returns that beat the market—because the maximum returns you can get are only equal to the index.

If you want to start investing in index funds, you need to choose the reference index first—decide where you want to invest. For instance, if you’re interested in the U.S. market, you can choose S&P 500 or NAS 100 (which focuses on technology). If you’re interested in the Chinese market, you can try Hong Kong 50, which includes large companies such as Tencent and Ping An. After that, you select a fund that invests in that index by looking at past returns and management fees.

For people who are only familiar with Thai stocks, you can start with Thai index funds such as SET Index Fund or SET 50 Index Fund. This is an easy investment method and truly suitable for beginners. When you’re ready, you can then expand to other markets.