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  • Funds that track a market index, such as the S&P 500®, are known as "index funds."

  • Index funds include both index mutual funds and index exchange-traded funds, or ETFs.

  • These funds typically use a passive investing strategy, which means their objective is to

  • deliver returns similar to an index of investments.

  • However, index funds usually deliver returns that are slightly lower than an index due

  • to fees associated with these funds.

  • In this video, we'll discuss how index funds work, identify some of the indices these funds

  • track, and examine benefits and risks associated with this type of fund.

  • Simply put, index funds are built to have a similar performance to that of a major market

  • index.

  • This means they tend to be diversified in securities across that index and include a

  • number of investments.

  • There are many market indices, and index funds that follow them.

  • For example, if you want to invest in U.S. stocks, you might invest in a fund that tracks

  • an index like the S&P 500, which follows the 500 largest stocks in the market; the Dow

  • Jones Industrial AverageSM, which includes 30 large-cap industrial stocks; the NASDAQ-100,

  • which follows 100 large-cap technology stocks; or the Russell 2000®, which tracks 2,000

  • small-cap stocks.

  • For international stocks, an example of a widely tracked index is the MSCI EAFE, which

  • includes large-cap stocks in developed countries across Europe, Australia, and the Far East.

  • For U.S. bonds, an example of a widely tracked index is the Barclays Capital Aggregate Bond

  • Index, which includes a mix of government bonds, mortgage-backed securities, and corporate

  • bonds with different maturities.

  • As you can see in these examples, index funds can track different assets, including stocks

  • and bonds.

  • There are even index funds that follow commodities, currencies, and other assets.

  • But regardless of which type of asset they track, an index fund still has its risks.

  • Put simply, index funds are exposed to the same risks as the index they're following.

  • For instance, if the S&P 500 declines in value, then the index funds which track it will follow

  • suit.

  • An index fund that tracks bonds is at risk if interest rates rise and bonds decline in

  • value.

  • Some investors are willing to accept these risks and choose to invest in index funds

  • because of the potential benefits they might offer.

  • A primary benefit is the typically lower expense ratiowhich is the ongoing cost of investing

  • in the fundcompared to actively managed funds.

  • As the name implies, actively managed funds use an active investing strategy.

  • This means that they frequently buy and sell investments.

  • This typically results in higher costs, or expense ratios, and can be a drag on a portfolio's

  • performance over time.

  • Because index funds are passively managed and simply track an index, they generally

  • have a low portfolio turnover, which means they infrequently buy and sell investments.

  • Infrequent buying and selling typically translates into low expense ratios.

  • The low expense ratios of index funds can possibly lead to more growth when compared

  • to the higher expense ratios of similar actively managed funds.

  • Let's look at an example.

  • Suppose an investor purchases $50,000 of two funds that both grow 7% per year - before

  • expenses - over the next 30 years.

  • The funds are similar in all respects except expense ratio

  • Fund A is an actively managed fund with an expense ratio of 1.2%.

  • This fund would grow to $ $271,356.

  • Fund B is an index fund with an expense ratio of 0.2%.

  • This fund would grow to $359,838.

  • That's a difference of $88,482, and it's all thanks to a low expense ratio.

  • The low cost of passively managed index funds can make a difference and is a reason index

  • funds may outperform actively managed funds over long time periods.

  • This is why some investors take the "if you can't beat 'em, join 'em" approach

  • and use index funds to simply track market indices.

Funds that track a market index, such as the S&P 500®, are known as "index funds."

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什麼是指數基金? (What Are Index Funds?)

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    Capalu Yang 發佈於 2021 年 01 月 14 日
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