HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
XM information and reviews
XM
86%
Exness information and reviews
Exness
86%

What is an Index Fund? A Definitive Guide


When faced with volatility in the financial markets, your first defence against the inevitable is having a well-balanced and diversified portfolio. Diversification of your portfolio can be done in many ways, and one way is to use index funds which offer instant diversification through owning a wide swath of companies in one instrument. Index funds can give you low-cost access to diversified investment. In this article, we explore what index funds are, how they work and some examples you may consider.  

What is an index fund?

An index fund is a type of mutual fund or exchange-traded fund (ETF) that keeps track of a financial market index. A market index, in this context, tracks the performance of a basket of assets representing one sector of the stock market or an economy. While you cannot invest in a market index directly, you can use an index fund to enjoy indirect exposure to the basket of products. 

Some common examples of index funds include:

How Index Funds Work

By “indexing”, managers create a passive way of managing funds. A fund manager develops a portfolio that contains the securities found in a certain index, rather than actively selecting stocks. The manager now no longer has to decide which assets to invest in or plan when to purchase and sell them. The theory behind Index funds is that, by closely matching the profile of the overall stock market or that specific index, the fund will be able to match its performance. 

For every financial market that exists, there can be an index for it and a matching index fund. For instance, many popular indexes in the U.S. track the S&P 500. 

Pros and cons of Index Funds 

If you’re thinking about trading index funds, here are some advantages and disadvantages of index funds for you to consider: 

Advantages of index funds 

Disadvantages of index funds 

How to buy index funds? 

To buy an index fund, you’ll first need to find an index fund you’re keen to buy. Much like purchasing an ETF, you can buy index funds directly from a mutual fund company (such as Fidelity, BlackRock, Franklin Templeton and more), or via a brokerage.

Top 5 Index Funds

With so many index funds around, how do you find one that fits your portfolio? To help with your research, here are some of the popular index funds you can check out today. 

#source


RELATED

Emerging markets: an intriguing niche

Emerging markets are the countries that possess some characteristics of a fully developed market but do not have enough to be...

Oscillating Indicators - Slow Stochastic

The slow stochastic is an oscillating indicator. Developed by George Lane , it can alert you to a shift of investor sentiment from bullish to bearish or vice versa...

What Factors Affect the Price of Cryptocurrencies?

Do you want to trade cryptocurrencies but need to know when it is better to sell or buy them? What happens to the prices in the crypto market, and what should you consider?

What is Decentralized Finance, or DeFi?

Decentralized finance, or DeFi, is similar to but not identical to Bitcoin (BTC). The term "DeFi" refers to financial systems enabled by decentralized blockchain technology. DeFi is mostly linked to the Ethereum (ETH) blockchain...

Wrapped Bitcoin and relationship with Ethereum explained

The cryptocurrency industry and both the Bitcoin and Ethereum ecosystems are rapidly evolving, and have come to the point of converging together as Wrapped Bitcoin (WBTC)...

ETFs vs Mutual Funds: Similarities, Differences and the Know-Hows

Exchange-traded funds (ETFs) and mutual funds have a lot in common. These two funds both pool investor investments into a combination of securities such as bonds, commodities, and stocks...

How to Amplify Earning With Margin Trading?

Leverage is the practice of using an amount of debt or borrowed capital to take a position in an investment, finance a project, or fund a business and...

Some things you need to know about investing in cryptocurrency

Whether you have thought about investing in cryptocurrency for a long time or it is an idea that sprang up recently, there are some things you should know before getting started...

Deep Dive Into The Current Cryptocurrency Market Trend

The cryptocurrency market is always on 24 hours a day, seven days a week. It never sleeps, takes a day or weekend off - not even on holidays like Christmas. The digital asset...

Ethereum: Will ETH Break Above $2000?

The recent spike in the crypto prices has coincided with the strongest period for the cryptocurrency and blockchain market since the end of 2018. Since December 2020...

What is Non-Deliverable Forward (NDF)?

A non-deliverable forward (NDF) is a forward or futures contract that is settled in cash, and often short-term in nature. In an NDF contract, two parties agree to take opposite...

Online Cryptocurrency Trading: Features and Advantages

The year 2008 marked the birth of the crypto market. It was in August when the domain bitcoin.org was registered and the description (White Paper) of the cryptocurrency was published...

Fundamental Analysis

Company fundamentals, such as the amount of money the companies earns and how efficiently they utilise their resources, drive the share and CFD markets...

Navigating the Exciting Challenge of Trading Over 150 Stocks with ModMount

ModMount presents traders with the exhilarating opportunity to dive into one of the largest and most dynamic online markets – the stock market. This platform challenges traders, whether novice or seasoned...

VeChain: Is It on the Verge of Massive Growth?

Asia continues to be at the forefront of blockchain development, and VeChain is one of the brightest crypto projects in the region. There are different opinions...

How to trade bitcoin CFDs on Forex

With all the hype surrounding the cryptomarket since its spectacular rise in value in 2017, there are not many people who haven't heard about...

Stocks of companies working on COVID-19 vaccine

The spread of coronavirus COVID-19 has paralyzed social and economic activity in most countries of the world. Despite the fact that a number of countries...

Trading Like A CFO - Planning

We already went over the similarities between trading and financial management. Now we are going to get a little deeper into each...

Why Live and Demo Forex Trading Show Differences

In practice - often because of the lack of a real money commitment - results achieved from trading in a demo account...

Quantitative Tightening: What Is It And How Does It Work?

During the pandemic alone, the U.S. Federal Reserve bought a whopping $3.3 trillion in Treasury bonds and $1.3 trillion in mortgage-backed securities to lower borrowing costs...

Vantage information and reviews
Vantage
85%
FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Just2Trade information and reviews
Just2Trade
76%
FXNovus information and reviews
FXNovus
75%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.