What is the Index Fund?

For those interested in achieving the same results as the stock market in the last century without any problems with the selection of individual shares there are index funds. During the last century, the market has shown a general tendency to value, even with the costs of recession and depression that are taken into account. Anyone who has constantly invested over the years should be cleverly rewarded in the long run, given that during the economic crisis or recession does not imply that they do not suit. The stock market consists of thousands of individual shares that went up and down, and selecting the right shares is not an easy task; The Index Fund simplifies this process by enabling investment in the index as a whole.

stock market index

This type of fund corresponds to the movement of one stock market index, from which you can choose more than 1,000. Two of the most common indices cited in determining whether the market is up or down on that particular day is the Dow Jones IndexThe securities were automated by quotations. Dow Jones consists of 30 of the largest and most established companies such as American Express, Kraft Foods, Microsoft and Wal-Mart, and was created more than 100 years ago, while Nasdaq is an electronic exchange and general refuge for fast-moving technology shares. The S&P 500 is another index that is often quoted and has shares of index funds.

How does it work

In order to correspond to the stock market index, each share of the fund is formed by a proportional amount of shares from each of the companies within the index that corresponds. The Index Fund also differs from mutual funds in that they are not managed; They blindly follow the index, for better or worse. The formula determines which shares to buy, while the mutual fund is actively managed by a money manager who decides how much to buy from each stock. The Index Fund significantly reduces expenditure without payingExperts, and as another bonus index fund generally exceeds long -distance mutual funds.

disadvantages

However, the disadvantage to the index fund is that it is designed to accurately match the index on which it is based, which means that they are not completely safe alternatives to choosing inventories. Whenever the market drops, the index fund will almost certainly follow. Some investors believe that it is best to leave mutual funds in place when they fall with the hope that they will recover in the coming years, while others decide to pull out money out of the fund and use another investment strategy.

Also, because the Index Fund corresponds to the market instead of trying to defeat it, huge profits are less likely. On the other hand, the fund usually offers a stable growth on a long track with less risk.