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The discussion on the income level of index funds and active funds has been going on for many years, but it seems that there is no definite result.

As a firm fund investor, I have invested in active funds and index funds. Compared with time-consuming and laborious active management funds, it is much easier to choose index funds.

It is for this reason that whenever someone asks me to recommend funds, I usually recommend index funds, and they are the most well-known broad-based funds, such as CSI 300, CSI 500 and SSE 50.

With its advantages of low cost, diversified investment and sustainability, index funds have become very popular investment products in mature markets in Europe and America. Therefore, Buffett will take pains to recommend them.

Although index funds have so many advantages, when we actually buy them, we find that there are so many index funds on the market, which are still silly and unclear.

I screened the Tian Tian Fund Network and found that there are more than 400 index funds. Although the number is far less than that of active funds, the choice is still quite large.

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Before choosing index funds, let's look at the classification of index funds.

A common classification method of index funds is to divide them into broad-based index funds and narrow-based index funds. I believe you often hear this word mentioned by others. What exactly is a broad-based index fund?

According to the standards of American securities institutions, the broad-based index generally needs to meet several conditions:

From this definition, we can analyze it a little:

As we all know, the fluctuation of individual stocks is very volatile. Although there are ups and downs in China, people with low risk tolerance can easily make your heart unbearable.

Broad-based index funds buy more than 10 stocks. On the one hand, it avoids the black swan risk of individual stocks, such as the tragedy of LeTV, Erkang Pharmaceutical and even Chongqing Beer.

On the other hand, index funds basically buy all or part of the index stocks, such as the Shanghai and Shenzhen 300 Index, which has 300 stocks, so index funds spread their funds among these stocks, greatly reducing your risk of buying individual stocks.

The single weight of broad-based index funds should not exceed 30%, and the cumulative weight of the five stocks with the largest weight should not exceed 60%, which is also a way to spread risks. If the weight is too concentrated, it tends to fluctuate up and down.

In addition, broad-based funds also have requirements for the turnover of constituent stocks. What does this mean?

Simply put, trading volume is the number of stock transactions in a certain period of time. Volume reflects the activity of funds. Some people buy it and others sell it, so that you can sell it then, and you won't be unable to sell it.

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After talking about the characteristics of so many broad-based funds, did you suddenly think of many index funds?

In fact, some of our common index funds belong to broad-based funds, such as CSI 300, SSE 50, CSI 500, Hang Seng Index, Standard & Poor's 500, NASDAQ 100, and Fundamental 50.

In addition to broad-based funds, there is also a narrow-based fund, usually an industry index or a theme fund.

Generally speaking, according to the standard of industry classification, industries are usually divided into 10 and industries, namely materials, optional consumption, necessary consumption, energy, finance, medicine, industry, information, telecommunications and public utilities.

Compared with the broad-based index, there are more industries and stocks, and the narrow-based index industry selection is more concentrated.

Major consumer stocks in the consumer industry, such as SSE Consumer 80 and CSI Consumer Index; In the medical industry, there are also CSI medical index and all-finger medicine for you to choose from. ...

In addition to some industry indexes, such as materials, energy and finance, there are also some theme indexes of pension industry, military industry and environmental protection industry for you to choose from.

It doesn't matter if you don't like the broad-based index with multiple industries and stocks. You can choose any industry fund or theme fund.

But you should know that the investment risk of narrow-based funds is higher than that of wide-based funds, because you should consider the development characteristics and stages of the whole industry and tap its investment value.

However, if you are a person who has just started investing in funds, you may wish to start with broad-based funds and choose the most well-known index funds on the market at present, such as CSI 300, CSI 500 and Fundamental 50.