How to invest in an index?
Well everyone has now moved into index investment, and this has boosted the business of the Index provider. As there are many types of Index calculation becomes difficult.
The custom index is one of the most difficult indexes to calculate and investing in the indexes must be done very carefully.
What is index investing?
If one wants have their own shares in the best known companies than they can easily do with the index investing.
Following are the types of index investment
- The Dow
- The Standard and Poor’s 500
- The Nasdaq
- The whilshhire 5000
Now each group of the stocks chosen are to represent portions of the stock market, majority of the investments made in the indexes are from the Standard and poor 500 and the whilshhire 5000.
Companies like Tupperware, Microsoft and heard of General electric fall under the category of the standard and poor 500 and the whilshhire 5000.
Why should one invest in an index?
The broad market index is the most profitable one as it basically represents the overall stock market; only about 20 percent of the total mutual funds have outperformed the standard and poor 500 index.
And one of the main reason that investing in the index is better as it is very cost efficient, so people investing here will be saving a lot of money.
The main reason behind them being cost efficient is that they significantly reduce the cost of their operating fees and gives good opportunity for the investors to grow.
There are two main ways to invest in the indexes
- Mutual funds
- Exchange traded funds
The ETF’S are just like the regular stocks of the American stocks.
Now one of the most frequent questions asked to us is that whether mutual funds are better or ETF’S but honestly investing in any of these is identical you can notice a very similar pattern in their investment.
The index funds charge the cost of the running fund and having this expensive ratio’s higher is bad to invest in that index.
Source : http://dividendindex.blog.fc2.com/blog-entry-5.html