1. Index funds diversification: I have been told about the benefits of diversification and going with index funds. Unless we actively manage them ourselves how are we going to get profited as market always goes through up and down cycles at least every decade?? For example, Vanguard’s VFIAX just provides just around 2% annual yield in dividends. How can this be beneficial unless I time the market (I.e. buy low and sell high) on an yearly basis at least? If I keep pouring my savings into this Index fund (or any mix of funds for that matter), there will come a day when there will be a repeat of 2000 and 2008 crashes which will downturn the market and start fresh! Am I missing something here?
2. Bonds: I thought bonds guarantee principal security but was told that their value decreases when interest rate increases. Does that mean when I complete the entire maturity term and by then the bonds value decreased from the original value, I will be selling short of the original value? Then what’s the difference between bonds (and bonds index) compared to stocks (and stocks index) except for less volatility factor?!
3. Fixed Index Annuities: Per my learning this is one of the solid investment vehicle that can secure principal and also provide some/most of market up trends without downtrend! Except for the catch that the money is less accessible until term completion, what are all the downsides that I’m missing to notice?
TC: 320 K
2. Bonds are fixed income instruments. You’re guaranteed the coupon payments, and the face value at maturity, unless the issuer goes bankrupt. Bonds are auctioned off, and someone may choose to pay more/less than face value. When alternative investments start looking more attractive, traders pay less for bonds, and hence the price a seller will receive before maturity changes
3. This is the worst choice so far, IRR is typically lower than a typical stocks/fixed income/money market portfolio