HOW TO INVEST IN NDEX FUNDS/ETFS

In today’s post, I’m going to show you exactly how to invest in index funds and ETFs, this is simple and proven step-by-step guide.

So, if you want to:

Then you’re in the right place.

Let’s get started.

Take Note: Warren Buffett one of the richest investor on earth he believes that it’s better to invest in index funds rather than invest in a single stock because in a long term individual investors tend to pick a wrong stock and end up losing entire investment.

Index funds tend to be much easier because do not need much effort on research like individual stocks how they need to clearly understand the company.

Hey friend in this blog I’ll keep it simple for you to understand how index funds and ETFs  work.

What is an index fund?

An index is a method used to track the performance of a group of assets in a standardized way.

It measures the performance of a group of securities intended to replicate a certain sector.

Example of index funds:

S&P 500 index

It tracks the performance of the top 500 of U.S public traded companies.

Popular companies traded in S&P 500 are:

Nasdaq 100

It tracks the performance of top one hundred largest U.S companies that are listed on the Nasdaq Stock Market and are segmented under technology, retail, industrial, biotechnology, health care, telecom, transportation, media and services sectors.

Nas100 Is the home of iconic tech companies that reached the trillion market cap in the US.

These are:

Other valuable tech companies in the Nasdaq index are such as

For Nas100 historical charts show it has been steadily growing every year, although there have been some bear market trends due to economy downturns but in a long term it gained.

Take Away Note: You can still make profits while trading indices. If you’re looking to take advantage on the volatility of Indices like Nas100 you need trading skills. You can choose one of the following broker to trade indices like S&P 500, Nas100 and other indices.

Dow Jones Industrial Average ( Us30)

It tracks best top best 30 large companies on the Nasdaq & NYSE in U.S

Popular companies in the Dow Jones include

DAX 30 Also knowns as GER30

DAX 30 also known as the DAX Index or the DAX for short, is a blue-chip stock market index comprising the 30 largest companies which actively traded companies listed on the Frankfurt Stock Exchange. 

Popular companies in the DAX 30 include

The index now represents 80% of the total market cap of listed German stock corporations, which makes it an important benchmark for domestic and international investors.

FTSE 100

FTSE 100 Is an index created by the FTSE Group which represents the 100 most highly capitalized companies in the UK listed on the London Stock Exchange (LSE).

Some commonly recognizable companies trading on the FTSE 100 include:

Nikkei 225 (Japan)

Is the leading and most respected index of Japanese stocks. It composed of Japan’s top 225 blue chip companies traded on the Tokyo Stock Exchange.

Some of the best known companies listed in the Nikkei are:

WARNING: It’s important to remember that even Index funds and ETFs have several risks that investors should consider. You should always examine the specific stocks included in an ETF and understand the projected risks before you invest.

How Do You Invest in them?

To invest in index funds you need a brokerage firm where you can open an account.

Most regulated firms come up with some restrictions to some countries, so you need to research one fits your requirements and your country registrations.

I’ll mention some which you can make a simple research:

Since an index tracks the performance of a market sector, you can not invest in them index directly.

You can only invest in the index through an Index Fund or an Exchange Traded Fund(ETF) that mirrors the performance of the index.

Index Fund vs ETF

An index Fund is a mutual fund that holds stocks of all the companies of a certain index and seeks to match the performance of the index.

ETFs are traded like stocks on the stock exchange and they mirror their respective indices.

Point To Note: The main difference of Index funds and ETFs  is that ETFs can be traded at any time of the day when then markets are open which make them affected by the day’s volatility. While Index funds can only be traded at the price set at the end of the day.

Now you get the different? Yes, Let’s see advantages of investing in ETFS

Advantages of Investing in ETFs

1/ They pay dividends

2/ They are diversified investments: Investing in stocks through Index Funds is a lower risk investment compared to buying individual stocks as we can refer from Warren Buffett.

3/ Good Long term Returns

The returns of the S&P 500:

4/ Exposure to World’s top companies: Most indices track the performance of large market capitalized stocks which you get a chance to get a share of the profits made by world leading companies.

5/ Little research is required: Unlike investing in stocks, you save yourself the time to analyze markets and companies.

You just pick the index that tracks the market sector that you are interested in and invest in its index fund or ETF

Being an investor is not an easy job.

As they say, “no pain, no gain.”

However, the real reason why people like to invest in stocks particularly Index funds, is because we believe stock market value is increasing in long term.

Source: Google Finance

Closing Thoughts

To start investing you need a clear research on what you’r investing, some do have different strategies like Dollar Cost Averaging (DCA). Follow guru investors like Warren Buffett and see how they handle their portfolios.

If you can’t invest start learning how you can Day trade by applying forex trading strategies.

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