What are the characteristics of the index?
First, it reflects the average market level.
The function of the index is to calculate the average value. For example, Bian Xiao is a student, and the academic performance of our class is better than that of the class next door, so we should calculate the average score of each class, which is relatively average.
For different indexes, the constituent stocks determined by the rules are different, and the weights measured during weighting are also different. Each stock is not necessarily calculated by equal weight.
Because of the existence of the law of large numbers, the larger the sample space of the index, the more effective the average reflected by the index.
The second is sustainability.
Exponents are rules and rules are sustainable. Take the Shanghai and Shenzhen 300 Index as an example. Given a sample of A shares, it can calculate the index value. Give it a sample of American stocks, and it can also calculate the value.
In the long run, because the index is sustainable, investing in index funds is much more reliable than investing in a single stock. Take the American stock market as an example. In the past 200 years, hundreds of stocks have been included in the Dow Jones index, but few listed companies have survived to this day. The famous General Motors is one of them.
For novice investors, investing in individual stocks has many unpredictable risks, such as financial fraud, long-term suspension of trading, black swan in the industry, and additional issuance that harms the interests of old investors. Investing in index funds can help us avoid these risks.
Well, the analysis of the characteristics of the index is here, hoping to help everyone. Warm reminder, the stock market is risky and investment needs to be cautious.