Stock Market Basics

Stock Market Basics: Index Funds

When entering the U.S. stock market, some folks will probably prefer a passive approach on gaining returns. Beginning investors are often advised to air to the side of caution when investing until they understand the various investing options. One of the ways I would suggest to get your feet wet in the market is to invest in index funds or ETFs.

Historically, index funds have been a way for investors to gain returns that mirror the current market activity. Index funds have low fees and typically no maintenance fees. Index funds are easy to track as their portfolio holdings have been well documented and reported for those who are interested in investing in them.

In recent years, as some firms are trying to make sure they are following the index trends as close as possible, they have created complex exchange traded funds (ETF) that require active management. The goal of these “new” index funds is to provide a concentration of stocks or bonds that cater to the investor’s risk and return preferences. If an investor wants to invest in stocks that are in the emerging markets or stocks that are morally conscious, they are able to find an ETF or index fund that considers these preferences and compiles a portfolio of securities that reflect those preferences.

ETF’s and index funds are best used to provide diversity in your portfolio and could help spark growth in various areas your portfolio is weak. Here are a list of the top traded ETF’s  in 2015 for you to research:

 

Name Category YTD 1 mo 3 mo 1 yr
SPDR® S&P 500 ETF (SPY) Large Blend -6.72 -6.72 -9.07 -3.86
iPath® S&P 500 VIX ST Futures™ ETN (VXX) Volatility 26.37 26.37 42.06 -27.22
iShares MSCI Emerging Markets (EEM) Diversified Emerging Mkts -8.98 -8.98 -16.33 -24.53
Market Vectors® Gold Miners ETF (GDX) Equity Precious Metals 4.23 4.23 -3.99 -35.77
iShares MSCI Japan (EWJ) Japan Stock -6.68 -6.68 -8.2 -1.38
Financial Select Sector SPDR® ETF (XLF) Financial -11.75 -11.75 -13.29 -8.28
iShares Russell 2000 (IWM) Small Blend -10.96 -10.96 -14.46 -12.85
PowerShares QQQ ETF (QQQ) Large Growth -8.68 -8.68 -10.59 1.19
United States Oil (USO) Commodities Energy -22.09 -22.09 -41.9 -53.97
iShares China Large-Cap (FXI) China Region -15.7 -15.7 -21.24 -27.16

The returns for 2015 were unimpressive but notice how these top ETF’s reflect some of the most pressing issues the stock market faced in 2015. China economy tanking, stock market volatility increasing, strong dollar, cheap oil are all reflected in these most heavily traded ETF funds.

So just know whatever kind of preference you want to pursue, whether in technology, materials, small businesses, or international businesses, there are ETF’s and index funds created to help you get into those sectors.

Til next time folks

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