An Index fund is a group of individual stocks that is designed to mimic the composition and thus performance of a sector within a stock market.
Index Funds
Individual stock picking can be overwhelming to many folks for varies reasons including number of choices, time commitment, volatility, financial acumen and so on. For such individuals picking an index fund for investment is the best and easiest choice.
What is an Index Fund?
An Index fund is a group of individual stocks that is designed to mimic the composition and thus performance of a sector within a stock market. The most famous index funds are based on companies that makes up S&P 500. By investing is an index fund that mimics S&P 500, you get access to 500 stocks, thereby reducing volatility of returns.
Index funds also enables an investor to compare how their specific investments are doing compared to an index.
There are many index funds that mimics different sectors of the stock market. One can choose index funds that are focused on specific group like country, international, bonds, or a sector. One can also choose an index funds that is either a mutual fund or Exchange Traded Fund (ETF).
Advantages of Index Funds
Investing in index fund is considered one of the best way of passive investing. Investing is an index fund reduces volatility of returns. Index funds usually have one of the lowest fees. You can be assured that your returns will be similar to the overall market.
Disadvantages of Index Funds
With index funds you will get returns similar to the market but will not beat the market. To get above average returns you may have to invest in high-risk individual stocks. Although index funds usually have low fess but some may have higher fees that will hinder your returns.
Final Verdict
Investing in an index funds allows an individual to get easy access to the overall market.
We hope the information in this post will be helpful in your journey of aspiring nirvana!