Index Funds

There are many different investment assets that one can invest in. In this blog, we tackle investing in index funds.

What is an index fund?

An index fund is a type of mutual fund, where a portfolio is constructed to track a specific index of stocks, bonds, or other investments. For example, investing in the S&P 500 index fund means to invest in all 500 companies of that market index to replicate its performance. The Dow Jones Industrial Average is a stock market index that is a list of 30 blue chip stocks. There are index funds that can get more specific, such as a subset of small-cap biotech companies.

Why invest in index funds?

An index mutual fund provides a broad market exposure, low operating expenses, and low portfolio turnover. It can be an effective and inexpensive way to invest. It gives an investor exposure to a part of the market.
This is because you do not need to buy each individual stocks and pay the transaction fee for each; instead, you pay one commission fee to get a basket of stocks, and a small percentage to a reputable third party managing the index fund. You can find index funds from as little as 0.05% managing fees to 1.5% for actively managed funds. It is an excellent way to diversify. Maintaining an index fund requires very little work, which translates to a lower cost for the investor. Index funds are not meant to be traded actively, as that can get expensive and are not intended to be traded. It is a good passive way to invest.

Types of Stock Index Funds

There are different types of index funds for stocks. Broad Market index funds track the performance of an entire market or a subset of the market. Global/international index funds allow the investor to have exposure to stocks around the world. Sector-specific index funds track a particular sector’s performance.

In the CRM2Plus software, you can benchmark your actual portfolio alongside various index funds. We have over 40 different index funds and counting, including the S&P 500. As an investor, you can view how various indices do compared to your actual portfolio.

In conclusion, investing in index funds is a passive strategy that is suitable for every investor. It is a stable, low-risk investment that is an easy way to diversify a portfolio. Instead of having to pick individual stocks, it makes sense for the average investor to buy a basket of them at an index funds’ low cost.