Anyone and everyone that has even traded stocks has heard about market indexes like the S&P 500, NASDAQ, NYSE, or the Dow Jones. A broad definition of what an ‘Index’ is can be understood as an indicator or measure of something.
In this case, the something refers to the rise and fall of the stock process of certain corporations that are listed on the index. According to leading investors, the purpose of an index is to help investors and traders with movements.
An index helps in measuring the benchmark of a specific stock in comparison with the performance of others that are listed on the same index. In this resource article, we are going to look at some of the important things investors should know about investing in index funds.
Picking an Index to Invest In: The First Step?
Now that we have got your attention let us guide you on how you start with your investment journey. While you can always open a trading account with an index list, it is better that you take help from experts at a leading investment bank. The main benefits of the same are as follows-
- If you are just starting out, an index broker can help you learn and become aware of how the market operates. They can help you with tons of educational resources.
- An index broker or firm provides its clientele with certain actionable insights that can help them make the right trading decisions. This usually results in major gains.
- Most amateur traders that do not consider this a full-time profession can find the services of index brokers to be useful as it helps them stay updated on market forces.
You should know that there are multiple index funds that you can track and invest in. In fact, there are so many different types and variations that it is easy to get confused about which ones you should go for.
However, if you talk about the best and most popular index fund, then the S&P 500 stands right at the top of the list. It contains the share prices of 500 leading American companies that are there in the stock market.
Apart from that, you also have other popular options like the Dow Jones and NASDAQ. If you are looking to invest in smaller companies that have lower share prices, then you should check out the Smallcap S&P 600, as well as the Russell 2000.
Index funds also encapsulate investing in foreign or international markets and their companies. MSCI Emerging Markets Fund, EAFE MSCI, etc., are some international index funds you can explore.
How To Buy Index Fund Shares: Basic Answers
By now, if you have been reading the article, you would have gained a fair share of knowledge and understanding of what Index Funds are.
This means that you might be interested in the next step, which is- how you can possibly buy index fund shares.
There are two major ways that you can opt:
- Opening a Brokerage Account
- Opening an Account with a Mutual Fund
One of the things that you should be paying close attention to is the costs involved. For example, when you go for a brokerage account, you do not want the firm you are working in to take too big of a bite of your gains. This can happen as some of the brokerage firms charge their clients extra when it comes to buying from Index Funds.
If you open a Mutual Fund Account, you stand to lose a lot of your autonomy. In other words, you have to leave it to the mutual fund experts on where they would want to invest your money. You will get the gains but not have a voice in terms of where you would want to invest. This is a safer option, which will help you keep all the gains in terms of saving commissions.
The Final Takeaway
Many investors that are looking to diversify their investment portfolio should seriously look to explore and invest in Index Funds. If you already have sizable real estate, precious metals, and commodities in your portfolio, you can take a small dip in this exciting and profitable trading and investing ecosystem. If you have any other questions on index funds that you would like us to answer, please let us know in the comments section below.