2. Classification of investment strategies based on index tracking. Investment strategies of index funds are different.

It can be divided into fully replicating index funds and enhanced index funds.

1. Complete replication index funds are also called passive index funds. Simply put, they completely track the index. The goal is to obtain the same returns as the index. The fund manager does not perform any high selling and low buying operations.

A fully replicating index fund can have no fund manager.

2. Enhanced index funds are based on the original tracking index, through the active management of fund managers, mainly through the so-called selling high and buying low, hoping to obtain returns higher than the index.

This type of fund must have a fund manager position.

We know that about 90% of fund managers cannot beat the index.

This shows that about 90% of enhanced index funds have lower returns than full replicating index funds.

In addition, the management fees of enhanced index funds are generally much higher than those of fully replicating index funds, because they require specialized fund managers to manage them.

Although the management results may not be good, the management costs are not low.

So we can just choose a complete replication index fund when investing.

You don’t need to participate in enhanced index funds to avoid wasting too much of your energy.

3. Classification according to the selection criteria of the index. It can be divided into broad-based index funds and narrow-based index funds. The broad-based index is one in which the sample stocks selected by the index cover different industries.

For example, the CSI 300 Index, CSI 500 Index, and Shanghai Stock Exchange Dividend Index are broad-based indexes.

Narrow-based index funds are those whose sample stocks are selected from only one industry or theme.

For example, the medical industry index, financial industry index, etc.

Under normal circumstances, we can invest in broad-based index funds, but not narrow-based index funds.

Why do you say that?

This goes back to the fundamental reason why you should invest in index funds.

The most fundamental reason why we invest in index funds is that they have the characteristics of immortality and long-term growth.

In this way, we can better allocate assets or pass on wealth.

Broad-based index funds have the two characteristics of immortality and long-term growth.

Narrow-based index funds do not necessarily have this feature.

This is because narrow-based index funds track a certain industry or theme.

And this industry or theme is likely to die in the long term. Even if an industry does not die in the long term, it is likely not to rise in the long term.

For example, the steel industry.

From this perspective, the long-term risk of narrow-based index funds is much higher than that of broad-based index funds.

However, long-term returns are not necessarily higher than those of broad-based index funds.

This is why we generally choose broad-based indexes.

But it does not mean that we must not buy narrow-based index funds. It requires us to have a deep understanding of a certain industry or theme.

For example, due to the aging of the population, the medical field will grow rapidly for a long time to come.

Only when you have a certain understanding of it can you invest.

This may also consume a lot of your energy.

We just try to do what we know well, and most of the time you can't go wrong by choosing a broad-based index fund.

4. According to different classifications of trading methods, they can be divided into on-exchange trading index funds and over-the-counter index funds.

Exchange-traded index funds refer to index funds traded on the stock exchange and are purchased through securities accounts.

OTC index funds refer to index funds that are traded outside the stock exchange and can generally be subscribed or redeemed through websites, banks or fund sales websites.

The main difference between the two is the purchase method, and there are also different transaction costs.

Generally speaking, the transaction costs of on-market index funds are lower than those of over-the-counter funds.

Friends who have securities accounts, just consider those on the market.

That’s all we’re talking about in this issue.

thank you all.