The most direct way for ordinary people to invest in stocks is to open a securities account and buy stocks directly in the market. In addition, they can also buy stock funds indirectly. So today, Bian Xiao is here to sort out what kind of index funds are. Let's have a look!
What kind of fund is an index fund?
Index fund is a type of fund, which aims to replicate the performance of specific market indexes (such as stock index and bond index). ). It tracks the performance of the index by purchasing the constituent stocks or other assets contained in the index and allocating them with the weights corresponding to the index.
What are the risks of buying index funds?
Market risk: the performance of index funds will be affected by the whole market. If the market fluctuates greatly or falls overall, the net value of index funds may also fall.
Index selection risk: the performance of the index depends on the selected index. If the selected index does not perform well, the return on investment of index funds will also be affected.
Risk of tracking error: The target of index fund tracking index is to approach the performance of index as much as possible, but due to the influence of transaction cost, cash management, repeated balance and other factors, the actual performance of index fund may be different from the index, that is, tracking error.
Risk of constituent stocks: the performance of index funds is affected by the performance of purchased constituent stocks. If there are major events or negative news in constituent stocks, it will have a negative impact on the net value of index funds.
Market liquidity risk: in a specific market environment, the liquidity of constituent stocks may be affected, resulting in an increase in the transaction cost of index funds or inability to trade in time.
Investment gurus recommend index funds.
The only investment product publicly recommended by Buffett is the index fund.
Buffett has repeatedly suggested that ordinary investors buy index funds in previous shareholders' meetings and letters to shareholders. In 2007, Buffett stressed in an interview with American Consumer News and Business Channel TV that for most small and medium-sized investors who have no time to study the fundamentals of listed companies, low-cost index funds are the best choice for them to invest in the stock market.
On May 3, 2008, an investor asked at Berkshire's shareholders' meeting: "Mr. Buffett, suppose you are only in your thirties and don't have any financial resources. You can only make a living by working full-time and have no time to study and analyze your investment, but you have enough savings to maintain your living expenses for one and a half years. How would you invest the first 6,543,800 yuan you saved? "
Buffett replied with a smile: "I will invest all my money in a low-cost index fund that tracks the S&P 500 index, and then continue to work hard."
In addition to Buffett, many investment gurus also recommend index funds to ordinary investors.
Peter Lynch, a star fund manager, once said: "The disadvantages of professional investment management are becoming more and more obvious, and ordinary public investors choose index funds to have better investment performance."
David Swenson, chief investment officer of Yale University Endowment Fund, pointed out: "Only 4% of the income of the same fund can outperform the market, and the annual after-tax return on investment is only 0.4%, which is a weak advantage."
Advantages of index funds
1) continues to rise for a long time.
Buying a broad-based index that represents the overall level of a country's stock market, such as the Standard & Poor's 500 and the Shanghai and Shenzhen 300, is actually buying a country's wealth. Judging from the development history of stock markets in various countries, the long-term trend of stock markets in major countries has hit record highs because of the continuous progress of mankind, the continuous improvement of productivity and the continuous development of economy.
Because the broad-based index is rising for a long time, we have a bottom in mind when investing. We don't have to worry about falling, holding patiently, or falling to underestimate the position, because it will rise back sooner or later.
2) It has the mechanism of survival of the fittest and is an "immortal" variety.
The index will adjust the constituent stocks according to the market, eliminate some targets with poor performance or unqualified requirements, increase the performance to meet the requirements, and the corresponding index funds will also follow the adjustment. And if you directly invest in stocks, if you buy LeTV or Storm Group, you will lose your blood.
3) Low transaction cost.
According to the data of Choice, the median total rate of active funds is1.75%; The median total rate of index funds is 0.65%.
Generally speaking, buying index funds is the pursuit of average market returns. In addition, investors can obtain excess returns by buying at a relatively low position or through good trading strategies.
Things vary from place to place: active funds are better than index funds.
The data of American stock market for many years shows that most of the performance of actively managed funds has been lost to broad-based index funds representing the average market income level. Therefore, many investment experts advise ordinary investors to participate in stock investment by buying index funds.
This is a comparison of the median returns of domestic partial stock active funds, enhanced index funds and the total return index of Shanghai and Shenzhen 300 in the past three years and five years.
It can be seen that active funds have the highest rate of return, followed by enhanced index funds, and the total income index of Shanghai and Shenzhen 300 is the lowest.
The conclusion is: Generally speaking, the yield of active funds is higher than that of index funds.