What are the advantages and disadvantages of index funds?
Advantages:
1, low cost
Index funds generally track a specific index and do not need managers to have any investment strategies, so the investment cost is not high, and the management cost will be lower than that of stock funds or enhanced index funds.
2. High performance transparency.
Because index funds track an index, you can know the changes of the fund's net value directly by looking at the ups and downs, which can also prevent investors from being defrauded.
3. Diversified investment
Index funds widely diversify their investments by tracking indexes, and their portfolio returns are basically consistent with the corresponding index returns. Individual fluctuations have little impact on the whole, which reduces and disperses investment risks well.
4. Less affected by other factors
Index funds follow the index operation, and can reduce the influence of external human factors through more programmed transactions in management, and will not suffer losses because of the subjective factors of fund managers.
Disadvantages:
1, the income is too passive and low.
If the ETF goes up, Index funds have income, otherwise there is no income, and the income is passive. Index funds are less volatile and less risky, so the expected return is lower.
2. lead the rise and not resist the fall.
Index funds are generally high positions, and it is impossible to control and avoid stock market risks through the operation of fund managers.
Why not advise novices to buy index funds?
1, lack of professional knowledge
Index fund is a passive fund, which takes the trend of an index as the subject matter, and requires investors to predict the trend of the index very accurately in order to make a profit, while novices generally lack relevant professional knowledge and technology and cannot predict it accurately. If the market is good, you may earn money, and if the market is bad, you may lose a lot.
2. High requirements for investors.
Index funds earn the average income of the market, so there is generally no big fluctuation in a short period of time, which will make some investors impatient and sell as soon as possible. It is recommended to hold it for a long time.