Table of Contents
What is an Index Fund
An Index fund is a type of mutual fund where a portfolio is constructed to be in match or monitor the content of a market index, say The Dow Jones for example. An index fund will give a broader market exposure, low operating expenses and low portfolio turnover. The funds within an index follow specific rules or standards that are unchangeable no matter the state of the markets.
Indexing is an inactive form of fund management that has been successful in outperforming even the most actively managed funds. Since managers of an index fund just simply copy the performances of benchmark indexes, fund managers have no need of research analysts and other assistance in the stock selection process.
Investing in an index fund is passive investing, because you are not required to anything. Index funds are an ideal core to a trader’s investment portfolio holdings for retirement accounts.
Monetary Flows to Index Funds
Because index funds outperform actively managed counterparts on a much larger scale, the flow of asset have grown significantly in index funds products. In a data from last year, investors reportedly invested more than $375 billion into investment funds from various asset classes.
Although the investment funds may sound like a pipe dream, investing your money in an investment fund doesn’t guarantee that you will never lose any of your money. There will always be factors like the markets going to bearish positions. A pro tip when investing into index funds is that you should hold on to a position.