Matthew Varga | Index Fund Investing 101 | Index Fund Investing for Beginners @MatthewVarga | Uploaded August 2021 | Updated October 2024, 2 hours ago.
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Welcome back to my channel, Matthew Varga here. In today's video I want to talk about Index Funds. What they are, what are some pros and cons, and why they might be a great option for you to begin your investing Journey or add to your current portfolio to help bring you closer to Financial Freedom.
What is an index?
An important thing for you to know when looking at index funds is what exactly an index is. In general, an index is a large pool of companies that make up a particular market or sector. People use these indexes to track how that specific market is performing overall.
Since an index is made up of many companies it allows you to have a better overall view of the market as a whole compared to if you were just looking at 1 individual stock.
For Example, the NASDAQ Index is known as being a main indicator of how the technology market is performing. Since this Index tracks over 2500 companies with a high focus on Tech companies, it would give you a better idea of how the tech industry was doing compared to if you were to just look at 1 company like google. Just because that one company is doing good or bad does not mean that the entire market is doing the same.
Some of the other main Indexes that you have probably heard of are:
Index examples:
The S&P 500: The Standard & Poor's 500 tracks the 500 largest U.S. public companies. It is considered to be the best indicator of how the overall US stock market is performing because it includes such a wide variety of companies.
The Dow Jones Industrial Average: This well-known index (also known as the DJIA) tracks the 30 largest U.S. firms.
The S&P/TSX: This is the Canadian Equivalent of the S&P 500 Index. The index tracks the performance of approximately 250 of the largest and most prominent Canadian companies.
So what exactly is an Index Fund?
An index fund is a type of fund whose holdings match or track one of those indexes. For example it could be looking to match the Technology Market, the Canadian Market, the US Market.
The key thing with an index fund is that they do not try to beat the market, or earn higher returns than the market by picking winning stocks. Instead, they are simply looking to match the market as closely as they can. So if we are in a growing Bull market like we are in right now, then an Index fund is going to look to grow at the same rate as the market grows.
The reason why Index funds are very appealing to alot of investors is They are a more passive hands off style of investing which appeals to the new investor just starting out or the busy investor who is looking for a more passive investing style that the only have to check on a few times a year.
Pros of index funds
Low costs:
Since index funds are not trying to Beat the market, they are simply trying to match the market. This means that the cost to run one of these funds is drastically cheaper than an actively managed Mutual Fund, where a huge amount of fees are needed to pay for salaries and other things.
So most Index funds have fees ranging from 0.04% to 0.25% compared to the 1-3% charged by Mutual Funds. 1-3% might not sound like alot but believe me it can eat away at your returns very quickie.
Built-in diversification:
Most people who start investing have heard about the importance of Diversification. Since Index Funds reflect a Whole Market they naturally already have built in diversification.
Index funds are simple to understand.
Another huge Pro to Index Funds, is they are pretty straightforward and simple to understand.
Cons of index funds:
Low flexibility: What makes index funds so appealing to passive investors can make them frustrating for investors who want to have more control over what companies do and don’t make it into their portfolio.
Low risk, low reward: Index funds are usually considered to be rather low-risk in comparison to picking and choosing stocks that you think will beat the market.
Not good for the Short Term time Frame: Index funds work best within a long-term financial strategy.
So there you have it. Hopefully this video gave you a good idea of what exactly an Index Fund is, how it works, some Pro’s and Con's, and how they might work with your long term investment strategy.
Other Places You Can Find Me
Instagram- instagram.com/matthew_varga
*This video is not sponsored. All opinions expressed are my own. I sometimes receive products for free from brands for consideration but will disclose when videos are sponsored and I am getting paid to talk about the brand/products mentioned. Thank you for support.
FREE Airbnb Beginners Guide- bit.ly/3nSMik8
FREE Real Estate Investing Checklist- bit.ly/3fRdSd9
FREE Budgeting Guide Download- bit.ly/3tWWP1I
Welcome back to my channel, Matthew Varga here. In today's video I want to talk about Index Funds. What they are, what are some pros and cons, and why they might be a great option for you to begin your investing Journey or add to your current portfolio to help bring you closer to Financial Freedom.
What is an index?
An important thing for you to know when looking at index funds is what exactly an index is. In general, an index is a large pool of companies that make up a particular market or sector. People use these indexes to track how that specific market is performing overall.
Since an index is made up of many companies it allows you to have a better overall view of the market as a whole compared to if you were just looking at 1 individual stock.
For Example, the NASDAQ Index is known as being a main indicator of how the technology market is performing. Since this Index tracks over 2500 companies with a high focus on Tech companies, it would give you a better idea of how the tech industry was doing compared to if you were to just look at 1 company like google. Just because that one company is doing good or bad does not mean that the entire market is doing the same.
Some of the other main Indexes that you have probably heard of are:
Index examples:
The S&P 500: The Standard & Poor's 500 tracks the 500 largest U.S. public companies. It is considered to be the best indicator of how the overall US stock market is performing because it includes such a wide variety of companies.
The Dow Jones Industrial Average: This well-known index (also known as the DJIA) tracks the 30 largest U.S. firms.
The S&P/TSX: This is the Canadian Equivalent of the S&P 500 Index. The index tracks the performance of approximately 250 of the largest and most prominent Canadian companies.
So what exactly is an Index Fund?
An index fund is a type of fund whose holdings match or track one of those indexes. For example it could be looking to match the Technology Market, the Canadian Market, the US Market.
The key thing with an index fund is that they do not try to beat the market, or earn higher returns than the market by picking winning stocks. Instead, they are simply looking to match the market as closely as they can. So if we are in a growing Bull market like we are in right now, then an Index fund is going to look to grow at the same rate as the market grows.
The reason why Index funds are very appealing to alot of investors is They are a more passive hands off style of investing which appeals to the new investor just starting out or the busy investor who is looking for a more passive investing style that the only have to check on a few times a year.
Pros of index funds
Low costs:
Since index funds are not trying to Beat the market, they are simply trying to match the market. This means that the cost to run one of these funds is drastically cheaper than an actively managed Mutual Fund, where a huge amount of fees are needed to pay for salaries and other things.
So most Index funds have fees ranging from 0.04% to 0.25% compared to the 1-3% charged by Mutual Funds. 1-3% might not sound like alot but believe me it can eat away at your returns very quickie.
Built-in diversification:
Most people who start investing have heard about the importance of Diversification. Since Index Funds reflect a Whole Market they naturally already have built in diversification.
Index funds are simple to understand.
Another huge Pro to Index Funds, is they are pretty straightforward and simple to understand.
Cons of index funds:
Low flexibility: What makes index funds so appealing to passive investors can make them frustrating for investors who want to have more control over what companies do and don’t make it into their portfolio.
Low risk, low reward: Index funds are usually considered to be rather low-risk in comparison to picking and choosing stocks that you think will beat the market.
Not good for the Short Term time Frame: Index funds work best within a long-term financial strategy.
So there you have it. Hopefully this video gave you a good idea of what exactly an Index Fund is, how it works, some Pro’s and Con's, and how they might work with your long term investment strategy.
Other Places You Can Find Me
Instagram- instagram.com/matthew_varga
*This video is not sponsored. All opinions expressed are my own. I sometimes receive products for free from brands for consideration but will disclose when videos are sponsored and I am getting paid to talk about the brand/products mentioned. Thank you for support.
