Investing in Index Funds: What You Need to Know | Investopedia | 3/1/23
- joshualin2024
- Mar 1, 2023
- 2 min read
Index - a statistical measure of the performance of a group of securities like stocks or bonds. They track the overall performance of a market, sector, or asset class. Indexes allow individuals to compare their portfolios with others and adjust their portfolio as needed.
Exchange Traded Fund - a type of investment fund that is traded like individual stocks. It is designed to track the performance of a specific index, sector, commodity, etc.
Stock index funds - a type of mutual fund or ETF that is designed to track the performance of a specific stock market index ex. Dow Jones and S&P 500
Bond index funds - a type of ETF that is designed to track the performance of a specific bond market index. A bond index is a statistical measure that tracks the performance of a group of bonds ex. Gov or corporate bonds.
As a junior getting his feet wet into finance and economics I am investopedia is honestly a great tool for me to use. Off of just one article I learned what indexes, ETF’s, Stock index funds, and bond index funds are. On top of this I also learned about Index Funds and why they are a good way to invest. They often do well, have very low fees, low tax exposure, and offer broad diversification. There are some downsides as well though, They have no downside protection, don’t take advantage of opportunities on account of passive management, and cannot trim underperformers. So overall the downsides mostly come because of the passively managed aspect of index funds. You can not cherry pick these funds to make your portfolio look nicer and you can’t take advantage of opportunities that come like with actively managed funds
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