What is an index fund? Many financial novices do not know what index funds are, nor do they know the purchase methods of the characteristics of index funds. Index fund is a very useful stock investment tool, and also an investment method highly recommended by Warren Buffett. Now let's explain what index fund is.
We all know that if we want to keep the assets in our hands, we must buy certain stock assets. Stock funds are a good choice, from which we can obtain huge profits. But the types of stock funds are also very large. There are thousands of stock funds in the market. What kind of funds should we buy? Warren Buffett has only recommended one kind of stock fund in public, which is index fund. Buffett will recommend index funds to ordinary investors every year. So does the god of stocks recommend index funds. So what is index funds?
Index fund is a special kind of stock fund, which copies and tracks the index. So what is the index? Index is a stock selection rule, such as the CSI 300 Index, which is the most famous index fund in China. It selects 300 stocks with the largest circulating market value from A-shares, which is the stock selection rule of CSI 300. This rule was prescribed in advance when the index was established. When we know the rules of this index, we can find the corresponding 300 stocks. Fund companies can also know the rules of the index. Fund companies can buy corresponding stocks by copying the CSI 300 index, which is what we call copying the index and tracking the index. So index funds buy a basket of stocks according to established rules.
Index fund is a kind of stock fund, but it is different from the traditional stock fund:
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Stock selection mode of stock fund: active type. Generally, the fund manager selects stocks. The return depends on the personal investment ability of the fund manager. If the fund manager has strong investment ability, he can get high returns. If the fund manager has weak investment ability, he can get low returns. But it is difficult for ordinary investors to measure the personal investment ability of investment managers.
Index fund:
Index funds buy a basket of stocks through passive stock selection, tracking the index, and completely copying the index. Index funds purchase stocks by completely copying an index. For example, the CSI 300 Index Fund selects stocks completely according to the CSI 300 index. The fund manager only supervises and maintains this process, and does not participate in stock selection itself. The return of an index fund depends on the index being tracked.
To sum up, index funds have three characteristics:
1. Regular stock selection, passive investment
2. No human interference, high transparency
3. Clear rules and long-term reliability
These are the advantages of index funds. Index funds have also become our first choice for investment. Many investors question what they are buying when buying index funds?
In short, an index fund is a collection of many stocks. An index fund replicates an index. Buying an index fund is equivalent to buying many stocks at the same time.
