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Index_investing_ _Going_by_the_numbers
| Index investing - Going by the numbers
The Dow, the NASDAQ, the S&P 500 – these are stock indexes,
company structures that keep track of the values of listed
stocks and enable brokers and others to trade in them. Index
investing involves holding a portfolio of stocks or a mutual
fund spread across an index, so that the value of the stocks is
relatively equivalent to the value of the index at any given
time.
The three big funds aren’t the only indexes available for
investing; there are thousands of others, including not only
American-based indexes but indexes specific to other countries
and international indexes. When looking at index investing, you
should keep in mind the wide variety of possibilities for your
invested cash.
The most significant advantage to index investing is that it’s
easy to diversify your investments, reducing your risk for
losing money. Index funds also have a lower expense ratio than
other types of mutual funds, which ensures that you’ll be able
to keep more of your money.
Although index investing seems to be hard to target to your
areas of interest, it’s actually easier than you think. For
instance, if your interest is in tech stocks, your index
investing choice is a NASDAQ fund. If you believe that a market
in another country, say India or South Korea, is getting ready
to take off, then you invest in a fund from an index based in
that country. You have more choice than you might think.
Choosing Your Index Investing Fund
You should educate yourself about the different indexes
available before you choose a specific fund. If you’re
interested in blue chip stocks, you should invest in a fund
based on the Dow Jones Industrial Average; this index tracks
thirty crucial companies heavy in blue chips. If you want a more
diversified portfolio that is based on a realistic picture of
the American stock market, you should look for a fund based on
the S&P 500.
If you’ve been looking overseas at the advances made there, you
should look for an index investing fund based in a promising
foreign economy. South Korea is emerging as a world leader in
health technology, for instance, as well as a prime area for
outsourcing by American companies.
As in any mutual fund, you should look to the long term rather
than the short. Index investing funds may be volatile in the
short term, but historically they’ve always gone up. Some
analysts are predicting a tripling of stock value by 2020, in
fact; this may be overly optimistic, but long term gains will be
offset if you overcompensate for losses and sell your holdings
early. Experts generally recommend that you leave your mutual
funds and index investing funds alone most of the time, making
adjustments on an annual or semiannual basis.
About the author:
Jakob Jelling is the founder of http://www.cashbazar.com. Please
visit his financial website to learn more about investing.
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