Index Funds Explained

An in a book helps us find a particular topic or subject within a big book, and similarly an of stocks helps us to sample a much larger group of stocks, and to learn about the entire subject by watching just a portion of it.

The indices are basically just lists of particular stocks that meet certain guidelines or criteria for being included in the .

For example, the stocks that make up the Down Jones Industrials meet certain qualifications. They are stocks in industrial companies, and they are stocks that are traded on the Down Jones. Furthermore, the creators of the choose them because of the way they tend to represent the other stocks that fall into those categories. So when they choose stocks, it is sort of like choosing a political representative who shares the views of the other people from his or her town or region. Because the stocks and their companies change over time, the indices are also changed. The Dow Jones will usually add a new stock or two each year, and let others drop out of the . In this way the most appropriate stocks are kept in the , and then those who watch the changes in the can get a general idea of the movement of the whole Dow Jones market of stocks.

One of the most interesting things about these ed stocks is that you can purchase shares of the , without having to go out and buy each individual stock in the entire . Let’s say that for instance you like Dow Jones stocks. You can buy an fund that invests in the found in the Dow Jones . If the stocks on average go up, so will your investment in the fund that is tied to them. By buying the you get diversity to protect you from losses and to help you take advantage of gains.

You can buy all sorts of that participate in various types of stocks, because an fund is sort of like a mutual fund that buys a particular type of stock. If you want to invest in the Japanese stock market or the London stock market, there are you can buy that are exclusively tailored for investors like you. And if you like transportation stocks, you can buy an fund of transportation stocks. The same applies to stocks related to silver, gold, livestock, European currency, or a number of other different assets.There are even to help you buy and sell based on the ups and downs of the market in options and futures.

To learn about , and which ones might look like attractive investment vehicles for you, you can follow them in business newspapers. Or better yet, ask your local stockbrokerage firm to give you more information about , and what sectors or areas of emphasis they participate in or target on behalf of their fund stockholders.


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