Index funds refer to funds that invest in indexes. It tracks the performance of the index by buying the constituent stocks of the index and earns the same expected return as the index's rise and fall. Buffett once said that the best choice for ordinary people to invest in the stock market is index funds, so how to choose index funds? Today we will talk about this topic.

First, choose a specific index.

Taking investing in the stock market as an example, stock indexes generally include comprehensive index, broad-based index and industry index. For example, Shanghai Stock Exchange Index and Shenzhen Stock Exchange Index are comprehensive indexes, Shanghai and Shenzhen 300 Index and CSI 500 Index are generalized indexes, while industry index refers to a collection of stocks in a certain industry, such as pharmaceutical index, consumer index and financial index.

In the domestic fund market, there are many funds investing in broad-based index and industry index. The advantage of investing in broad-based index funds is that it can avoid the black swan risk of a certain industry, while industry index funds are convenient for investors to invest in specific industries. The risk of investment industry index is higher than that of broad-based index, and the professional requirements for investors are higher. It is more suitable for ordinary investors to choose broad-based index funds.

Second, choose index funds with low tracking error.

Index funds make money by tracking the rise and fall of the index. After selecting the index, the next key is to choose the index fund with small tracking error. In addition, the proportion of stock positions of index funds is also very important. The smaller the stock position, the greater the error of tracking index. If the index rises sharply, but the index fund tracking the index does not increase much, the error of this index fund will be relatively large, and there will be a situation of "earning the index but not making money".

Third, choose low-cost index funds.

The lower the cost of investment funds, the better. In this respect, it is more cost-effective to choose ETF index funds. ETF funds are funds that can be traded on exchanges, just like the process of buying and selling stocks. Its investment cost is basically the same as the stock commission, far lower than the redemption cost of OTC funds. Therefore, it is best to choose ETF index fund when choosing index fund.

These are the three skills for choosing index funds. The risk of index funds is relatively high. Whether to make money depends entirely on the performance of the index. Investors should fully measure their risk tolerance before considering investing.