What are the advantages and disadvantages of index funds?
Advantages of index funds:
1. The cost is relatively low. Because the index fund adopts the investment strategy of tracking the index, the fund manager does not need to spend a lot of time and energy to choose the types of investment tools and trading opportunities, thus reducing the management cost of the fund to some extent.
2. High performance transparency. As long as investors see the rise and fall of the underlying index tracked by index funds, they can generally judge the changes in the net value of the index funds they invest in and how much profit or loss they have.
3. Reduce risks by fully diversifying investment. Because index funds widely diversify their investments by tracking indexes, their portfolio returns are basically the same as the corresponding indexes. This reduces the investment risk of investors as a whole.
4. The management process is less affected by human activities. The investment management process of index funds is mainly a passive tracking process corresponding to the target index. In this way, the influence of human factors can be reduced through more programmed transactions in the management process.
Disadvantages of index funds:
1. The fluctuation is not great. Those who like venture capital will feel that the fluctuation is small and the income is not high.
2. The income is too passive. That is to say, if the ETF goes up, the fund will have income.
3. Lead the rise but not resist the fall. In any market, the position of index funds is very high, and it is impossible to avoid the risk of the stock market through the operation of fund managers.
Index funds can be divided into broad-based index funds and narrow-based index funds. Broad-based index funds are funds that track stock indexes with wide industry coverage, such as CSI 300, CSI 500 and SSE 50. And the narrow index fund is a fund that tracks the stock index of a single industry, that is, the industry index fund. Compared with the broad-based index fund, it has lower risk and more stable income, which is suitable for many novice investors, while the narrow-based index fund has greater risk and higher risk tolerance.