Index funds are the investment vehicle for most people

index fund

An index is a functional fund or ETF that tracks the trend of the index through buying and selling operations, thereby replicating some index returns, including the S&P 500, Dow Jones, Nasdaq, and of course some indexes in international stocks, bonds and real estate.

Passive

There is no need to rely on the investment judgment of the fund manager. Generally refers to index funds, that is to say, by tracking and replicating the returns of the index.

Active

The fund manager will make an investment and trading decision based on his research and analysis, the purpose is to bring investors a return higher than the market, passive funds.

the difference

By referring to the past returns of index funds, the returns under long-term investment are very good, and investing in index funds is equivalent to investing in the entire market, so there is no need to select any stocks through fund managers. If you study long-term investments for more than ten years, the return of index funds will be 80-90% higher than that of active funds.

One of the benefits of investing in funds is that it can spread the risk of our investment in stocks, thus providing more stable returns. A stock fund, whether it is an active fund or an index fund, because it can contain a lot, can offset the gains and losses of each other, thus bringing more stable returns.

Active funds generally reflect some judgments of investment managers, and the concentration of holdings may be higher. Relatively speaking, the investment in index funds is basically scattered in all walks of life in the market, so it will go further reduced risk.

Another advantage of investing in index funds is that it is simple. Index funds are suitable for ordinary investors who need to work hard and have no time to read reports and do research by themselves. Investors can buy the entire market through market index funds and obtain the benefits of the entire market. This return on investment.

Another benefit of index funds is their low fees. The problem with some active funds is that there are too many fee items. In addition to management fees, they may also be charged commissions or other fees. Some investors choose active funds because they are willing to bear higher costs. Risk, giving higher fees for the opportunity to earn higher returns. If the fund’s investment strategy is more complicated and the transactions are more frequent, then the management fee may be higher, but in fact, in many cases, active management and frequent transactions may not necessarily bring higher returns, but they will definitely generate higher returns. Transaction fees, which lower our returns, and index fund management fees are generally very low, and the management fees are determined by different investment companies.