1. Diversification
Diversification refers to the ability to invest in a way that reduces your risk.
- Hold thousands of companies
- Risk of loss is reduced
- Invest in different sectors and countries
2. Low cost
Index funds charge low fees because they are passively managed.
- Low expense ratio
- No commission, management fees, or load fees
- No intermediary to cut your returns.
3. Performance
Index funds' performance is hard to beat.
- Index funds have a solid performance
- Most fund managers fail to beat index funds
- Buying individual stocks is riskier
- Expect to outperform fund managers over the long term.
4. Less time consuming
Investing in index funds doesn't require a lot of time.
- No research is required
- No need to read financial statements
- No high IQ
- No finance background
- No need to know financial ratios.
5. More tax-efficient
Index funds mirror an index and do not buy and sell as much as actively managed funds.
- Low turnover
- Fewer capital gains distributions
- Less taxable events created.
6. Facilitate portfolio construction
Index funds are easy to construct a portfolio that suits your risk tolerance.
They invest in :
- Bonds, stocks, and commodities.
- International and domestic funds.
7. Capture market returns
Index funds mirror the returns of the market. 90% of actively managed funds failed to beat the market. If the market goes up 10% one year, you get 10%.
8. Self-cleansing
Index funds are made of thousands of stocks or bonds. If one company does not offer good returns, it could be replaced by better-performing ones in the index.
This offers low risk for investors as compared to owning individual stocks.
Content created and supplied by: Sylvia (via Opera News )
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