The index is a weighted average to reflect the market average.

The stock index is the average of an index we count.

For example, the Shanghai and Shenzhen 300 refers to the Shanghai and Shenzhen Stock Exchanges, and 300 stocks with the largest scale and the best liquidity are selected to form the Shanghai and Shenzhen 300 Index. The stock prices of these 300 stocks are weighted and averaged according to their respective weight ratios, and the so-called Shanghai and Shenzhen 300 Index is calculated.

Index funds are funds that invest in the constituent stocks of the stock index. Shanghai and Shenzhen 300 index funds basically invest in these 300 stocks according to the stock weight of Shanghai and Shenzhen 300, and the rise and fall of index funds basically reflects the rise and fall of the index.

There are some enhanced indexes, and in order to pursue higher returns, the weights will be adjusted, but basically they will not be too divorced from the index trend.

2 Advantages of index funds

When Buffett preaches investment theory, he mostly recommends index funds, not value investments, and recommends S&P 500 index funds almost every year. Equivalent to China's CSI 300.

Index funds have the advantages of average, persistence, passivity, periodicity and low cost.

At the beginning of the establishment of the Dow Jones index in the United States, there were 12 constituent stocks. Up to now, only General Electric still exists. However, the Dow Jones index is the most influential stock index, because it is re-screened every year to eliminate unqualified stocks and join qualified stocks. Although the stock does not exist, the index already exists, and long-term investment index funds can enjoy continuous income.

Index funds avoid the adverse events such as human judgment error, style deviation and rat warehouse of fund managers in active funds, and are more passive and cyclical.

In addition, the handling fee of index funds is also lower than that of active funds. Generally, the management fee of ETF index funds traded in the market is 0.5%, the custody fee is 0. 1%, the general management fee of active funds is 1.5, and the custody fee is 0.25%. Compared with ETFs, ETFs only have 1/3 active funds. In addition, exchange traded funds are traded on stock exchanges. The commission is generally 2.5 ‰ (you may get 1 1 if you catch up with the preferential activities of the brokerage firm), which is much cheaper than an OTC fund with a discount of 10% and 1.5, and the redemption fee of an ETF that has been held for less than two years is also much cheaper than that of an OTC active fund.