Have you ever considered investing in a comprehensive index? The philosophy of this type of investment is that it does not try to outperform the market, but rather follows it, allowing it to flow with it.
Index funds were created in 1975 by economist John Bogle, who revolutionized the investment world. Vanguard Group was founded in May of that year, and it pioneered a novel ownership structure in which shareholders became co-owners of the funds in which they invested.
Because this philosophy was based on average investors, it would struggle to outperform the market over time, forcing him to prioritize ways to reduce investment expenses, so he chose to focus on passive investing with low turnover and simple investment strategies.
When we talk about an index fund, we’re referring to a type of fund made up of shares that represent a specific market index, such as the Ibex35, the S&P 500, or the Vanguard Global Stock Index Found.
This type of investment does not require the investor to intervene, but rather provides the option of directly generating a portfolio with various possibilities allowing for a medium and long-term return on savings, without the worry of purchasing securities in the same proportion individually.
Index funds assist investors in balancing the risk of their investment portfolio so that the wild and volatile swings produced by managing the portfolio on an individual basis disappear and the trend becomes much less volatile.
WHAT YOU SHOULD KNOW ABOUT AN INDEX FUND (characteristics)
Investing in index funds, whose primary function is to buy stocks that comprise an entire index, is currently one of the best ways to buy indirectly in an entire market. For example, if the index tracks an index such as the Ibex35, the fund will invest in Ibex35-listed stocks.
Similarly, the investor purchases shares of the fund, the value of which is determined by the index in which it is listed.
They are unlisted because they are purchased through an asset manager. The index and index funds’ performance as these usually match the NAV, being traded without a spread, gives the investor an idea of prices.
If you want flexibility in trading the market during trading, this is your investment focus, and the ETF can meet your needs. If you are looking to be a long-term investor, an indexed fund is ideal; however, if you are looking for short-term investment or trading, an ETF is the best structure for you.
Index mutual funds are an excellent choice for investors seeking long-term or even medium-term returns without devoting too much time to technical analysis in today’s financial markets.
WHAT DO WE MEAN BY INDEX?
The stock market index is made up of the largest companies in a country, chosen based on various criteria, and the quoted price is the average of the assets that comprise it.
They contribute to the measurement of the economic process and the technological evolution of society and are an excellent investment vehicle.
Index funds are currently classified into two types:
Fixed-income index funds: These funds mimic the composition of stock market indices.
The equity index fund replicates the composition of fixed-income indices.
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