An index fund is simply a type of ETF that tracks a stock market index, commonly referred to as a form of passive investing. Index funds track indexes from every single market. The most common index fund tracks the S&P 500, which holds the 500 largest USA companies from every industry.
Pros of Investing in Index Funds:
There are tons of pros to index fund investing but we’ll stick to 3 main factors that attract beginner level investors. Firstly, investing in index funds is very low risk relative to individual stock investing. Because index funds are extremely diversified, fluctuations in stocks will not affect your portfolio as a whole. The second major pro is that you do not need much experience to succeed in index fund investing. The money that you invest goes to large corporations such as vanguard, where portfolio managers and analysts use millions and maybe even billions of dollars worth of research and quantitative analysis to manage an index fund. Which brings me to my next point being that index fund investing is very low maintenance.
How to invest in index funds:
How do you invest in index funds? Well first you will either need to open a brokerage account that offers the ability to buy and sell index funds, or you can open an account with the company providing the fund. Next, you’ll need to find a fund you like. For example if you think that tech companies will go up, you might want to look at the Vanguard Information technology Index fund(VGT). The third and final step is to buy and sell.
What are the popular index funds:
Index funds can become popular through attractive returns or maybe low cost. Here are our favorite index funds for 2021:
- iShares Core S&P 500 ETF
- Vanguard S&P 500 ETF
- iShares ESG Aware MSCI USA ETF
- Schwab US Small-Cap ETF
- Invesco WilderHill Clean Energy ETF