Among the types of funds, index funds can be said to be familiar and concerned by most investors. Many investors use index funds for fixed investment and so on, but index funds actually have certain risks.

1, individual black swan risk

This kind of risk refers to a sudden and unpredictable risk. Usually, only when such a risk occurs will we realize that such a risk has occurred in hindsight. Individual stocks often face all kinds of accidents, even large-scale and well-known stocks from the media or other aspects may have accidents, and then we realize that such risks will occur. And index funds buy a lot of stocks, including dozens and hundreds. The problem of a single stock has little impact on the whole.

2. Risk of permanent loss of principal

Because of its characteristics, index funds will only buy stocks according to the index, and will not choose companies with financial problems or even losses. In addition, the number of stocks purchased by index funds is as high as dozens or hundreds. Even if any stock falls, it has its limit and will not lose money. It is precisely because of these two characteristics of index funds that you can avoid the risk of permanent loss of principal.

3. Institutional risks

Our investment market is booming, but its system still has many imperfections.

In the traditional stock funds, some people with bad behavior make a lot of money for themselves by taking advantage of these imperfections. It is hard to say what investors have been cheated, such as "rat warehouse" and insider trading.

In contrast, index funds are safer and will not generate institutional risks because of imperfect systems. As its name implies, index funds use indexes to select stocks. The rules of indexes are certain or even open, and any investor can inquire and supervise them. There will be no institutional risk problems such as rat warehouse and interest transfer, which greatly improves its security.

Index funds are relatively safe to some extent because of their characteristics. When choosing a fund, investors can choose a company with a big brand and a large fund scale, or choose a product with a large fund scale, and properly inspect the comprehensive strength of the index investment management team of the fund company, such as staffing, work experience and program system.

How to choose?

Index funds are widely concerned by investors because of their simple operation and low transaction cost. So, for investors, how to choose index funds?

First, choose a powerful fund company.

For investors, the strength of fund companies is their primary concern. The stronger the fund company is, the better the talent quality will be. Index funds are also called passive funds. As the name implies, it is passive investment, and the operation mode is relatively simple. However, tracking the target index is a complex project, which requires accurate calculation and rigorous operation process. The stronger the fund company is, the more closely it can track the underlying index.

Second, according to their own risk tolerance, choose the index fund investment strategy that suits them.

Under different market conditions, the performance of index fund investors' strategies is also different. There are three investment strategies of index funds: market value weighted index, average weighted index and fundamental index. In the volatile city, the most outstanding performance is the fundamental index; In the bull market, small and medium-sized stocks rose sharply, so it is beneficial to choose the average weighted index fund. For example, SSE 50 has been rising. In this case, it is better to buy market-weighted index funds than the other two.

Third, choose index funds with high index fitting.

Although index funds track the underlying index, there is still a certain deviation from the tracked index. The main reason is that the net assets and cash flow of tradable shares in the index basket are constantly changing. If the fund invests in this basket of stocks and does not make corresponding changes in its proportion in time, then there may be deviations from the corresponding index.

Generally speaking, the more worth buying, the better the tracking error of index funds. Investors can constantly compare the historical data of index funds and indexes, trying to understand the previous fitting performance of the funds.

Fourth, choose an index fund with a lower total rate.

It is necessary to reduce the investment cost as much as possible, that is, try to fund index funds with relatively low total expenses. However, it should be noted that lower fees are of course important, but they need to be on the premise that the fund has good returns. Don't choose index funds at will because of too one-sided pursuit of low fees.