What are the advantages of index funds? Buffett can recommend index funds for ordinary investors. What are the advantages of index funds? Index funds have three great advantages.
Advantage 1: Immortality
Immortality is a unique attribute of the index. For example, the Dow Jones Index in the United States was born more than 100 years ago. It started at 100 points, and only 20 constituent stocks were at first. As a result, more than 100 years later, the Dow Jones Index is still there and has risen to 27000 points. Most of the original 20 constituent stocks have declined and gone bankrupt. At present, the number of constituent stocks has also increased to more than 30. More than 100 years later, the Dow Jones index is still alive, but the companies in the Dow Jones index have changed several batches. This is the secret of immortality of index funds. No company can achieve immortality, but the index can achieve immortality by absorbing new companies and replacing old ones. In theory, the life of index funds is equal to that of the government.
Advantage 2: long-term rise
For example, the Hang Seng Index in Hong Kong invests in the 50 largest listed companies in Hong Kong, and Tencent Holdings, as we know, is one of the constituent stocks. The Hang Seng Index was born in 1964. At first, it started at 100 points, but now it has risen to 2400 points. from Trend chart of Hang Seng Index You can see the huge power of index fund's long-term rise. However, the volatility of index funds is relatively large. The long-term return of index funds is realized in the process of ups and downs. It reflects the characteristics of high volatility and high return of index funds. Why can index funds achieve long-term growth? This is because the productivity and productivity of constituent companies are constantly improving. These companies will earn more and more money, which will drive the long-term rise of index funds. Buffett once said that buying index funds is buying national fortune. As long as the national economy develops normally, index funds can rise for a long time. We can share the benefits brought by the national economic growth.
Advantage 3: Low rate
The term "low cost" here refers to management fees and custody fees. Any fund will charge management fees, which is also the main source of income for fund companies. This fee will be directly deducted from the fund background. The management fee of index funds is about 0.6% - 0.8%, while the annual management fee of ordinary stock funds is 1.2% - 2%.
These are the three major advantages of index funds. Investors must fully understand the characteristics of index funds when investing in index funds, so that they can have fewer questions and clearer investment ideas when buying them.
