With the development of financial market, more and more investors choose to buy index funds to get asset returns. While the index rose, many investors found that their index funds fell. This is a problem that many investors are very concerned about. This paper will discuss this issue from many aspects.
Need to understand the characteristics of index funds. Index funds are passive funds, and their fund managers will not take the initiative to buy and sell stocks. On the contrary, it will buy and sell stocks according to the tracked index to achieve the purpose of tracking the index. The performance of index funds is closely related to the index they track.
Need to know the tracking error of index funds. Index funds may have tracking errors when tracking indexes. This is because index funds need to pay transaction fees, management fees and other related expenses when buying and selling stocks. These costs often have a certain impact on the performance of index funds. This effect may be more obvious during the period of violent market fluctuation.
Need to consider the asset allocation of index funds. The asset allocation of index funds is carried out by the fund manager according to the tracked index. This means that when the asset allocation of index funds is inconsistent with the market situation, its performance will be biased. For example, when the market is improving, if the asset allocation of index funds is biased towards poor performance stocks, the performance will decline.
Need to consider the market situation. Market conditions also have a great influence on the performance of index funds. When the market is unstable, the performance of index funds may be more affected. This is because the instability of the market will lead to changes in the asset allocation of index funds, thus affecting their performance.
There are various reasons. When investing in index funds, we need to fully understand their characteristics and performance, and carry out scientific asset allocation and risk management. Only in this way can we obtain a stable return on assets.