Study funds, start here
Index funds: get average returns
This course is reproduced from Morningstar and has been partially revised by Futu.
With the gradual increase in the number of domestic index funds, investors begin to face the question of whether to choose passive index funds or active managed funds.
The index fund uses passive investment, selects an index as the imitation object, and buys all or part of the securities in the securities market included in the index according to the standard of the index, in order to obtain the same level of return as the index.
For many investors, index funds provide the most convenient and simple way to invest. Investors need not worry about whether fund managers will change their investment strategies, because index fund managers do not need to choose their own stocks at all, so it does not matter who is the fund manager.
The biggest advantage of investing in index funds is that the cost is low.Because index fund managers do not need to actively select stocks, the management fees of index funds are relatively low. At the same time, because the index fund adopts the strategy of buying and holding, and does not need to change shares frequently, the transaction fees such as commission when the fund buys and sells securities are also far lower than those actively managed funds. In addition, the fee levels of the two funds tracking the same index may be different, and the two funds covering the same market level may not use the same index as the benchmark. The average management fee for index funds in the US market is about 0.18 per cent to 0.30 per cent.
In addition to cost savings, index funds also have the advantage of protecting your investments from underperforming fund managers.Like the holders of actively managed funds, you do not need to keep an eye on the changes in the fund, such as whether the investment team has changed and whether the fund manager is still in office.
Every market has winners and losers. Generally speaking, investors are the market, and the average return on their investment is the average return on the market.Investing in index funds is like investing in the whole market, and in theory you get the average return of all investors.You may think that some lucky or talented fund managers can outperform the market, so you want fund managers to invest in their own unique way instead of selecting stocks or bonds based on indices, in which case you can choose actively managed funds. And that means you have to have full confidence in the ability of fund managers.
To understand how the risks and expected returns of an index fund differ from those of other index funds, you must first know what index it is tracking.
From the domestic situation, the indexed investment part of Wanjia 180 is mainly invested in the stocks that make up the SSE 180 index; the target index of Boshi Yufu Fund is Xinhua FTSE China A200 Composite Index (75% Xinhua FTSE China A200 Index + 25% Xinhua FTSE China Bond Index); Rongtong Shenzhen 100 Index Fund tracks Shenzhen 100 Index.
It is worth noting that index funds adjust their portfolios only when the shares change. The resulting buying or selling of shares will have an impact on the stock price.