In buying an index fund, while you give up some of the fund manager risk, you also give up the potential for reward. There is one other unique risk for index funds. These funds, by definition, have to invest all their money in the stocks of the index. They cannot leave reserve funds or transfer investments to another type of asset such as bonds. While nobody is sure yet what will happen in a bear market , this restriction could mean that they would underperform mutual funds in such a situation.
Many investors mix and match between index funds and mutual funds.
If you want less risk after a year, you may want to sell some of your Aggressive Growth Fund and buy a more of the Growth and Income fund. Either way, funds can be used in your attempt to maximize your return with the least risk possible. In the section on index funds, we mentioned that the returns of the funds are almost exactly like those you would receive if you could buy the index. Actually, you can buy the index. The American Stock Exchange has created trusts that almost exactly mirror the performance of the underlying index.