Investment in Index Fund or Index ETF

Index fund is mutual fund that track an Index eg. S&P 500 index, STI index etc. As for Index ETF (Exchange Traded Fund), it also design to track an Index but but operate more like a stock. In essence, Index fund is open-end fund while Index ETF is close-end fund. For open-end funds, the Mutual fund company can sell as many shares as investor want (as per demand). As for close-end funds, it closely resemble stocks in that they were only a fixed number of the shares and are often traded on an exchange.

Benjamin Graham and Warren Buffet have praised index fund/ETF and think that an average investor can profit from buying into the market in the long run. The fact that the market keeps going up in the long term but is highly volatile in the short term provide an great incentive for average investor to buy Index fund/ETF( for the long term ... > 10 years at least). Historically figures indicate that the average annual return of STI index is 8.6% for STI and 12% for S&P 500.

The primary reasons for the the strong growth if you buy into the market is bacause of inflation and increase in world population. With inflation, you will need to pay more for the same stock in the future. An increase in world popluation will increase the demands for goods and services thus injecting growth in the overall stock market in the long run.

Inflation is not avoidable after the Bretton Woods system collapse in 1973, it facilitate the development of worldwid credit bubble. What this mean is that the US was no longer required to pay for its imports with gold, or rather with dollars backed by gold. In real sense, US could pay for its imports with us dollars with no backing of any kind. That where money become currency.. As a result, the US dollars in circulation began to explode since 1973 till now.
This will also push inflation up year after year. With more and more US dollars in circulation in the future, the market will definately grow upward in the long run.

However, this investment strategy of buying into index fund/ETF will collapse if the US dollar credit bubble burst. The market will move down with little or no chance of recovery depending on how the Fed reserve reaction to the crisis. Aside from this extreme condition, the market will always move upward in the long term with some down trend in the short term. If you stay invest in a index fund/ETF for more than 10 years in S&P 500 and STI, statistic reveal then you will 100% change o f winning.

One reason why the US S&P index outperform other index in the long run is as follow: much of the world has grown dependent on exporting more, than importing from the US, thus rapidly increase the indebtedness of the US to the rest of the world. However, credit contraction and economic depression did not occur in major deficit US becuase it was not required to settle its current account deficits in gold, but to pay with debt instruments instead. As you can see, who will want to debt instruments from US if it does not maintain as the world leader of the world. As you can see, from US point of view, with more importing and the demand for goods and services from the rest of the world continue to grow, US market will definately grow along with it.

Hope someone can contribute to this post and correct me if i am wrong... as the content is purely my own opinion and ideas.