What is an Index Fund?

James Justin Financial Health Leave a Comment

Index Fund is a common tern in the world of investment. When you invest your money, you do so with the hope to multiply it or make a profit. According to Investopedia.com, “an index fund is a type of mutual fund or exchange-traded fund (ETF) with a portfolio constructed to match or track the components of a financial market index, such as the Standard & Poor’s 500 Index (S&P 500).”

A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. When you buy a stock of a business, you essentially own a piece of that company. Whereas, an exchange-traded fund (ETF) is a financial basket of products or securities that trade on an exchange such as the New York Stock Exchange.

Index Fund Benefits

Investing in an index fund offers many benefits. They promise ownership of…

  • a wide variety of stocks
  • greater diversification
  • lower risk
  • and usually low trading cost

According to James Royal, here’s a list of 2022 Best Index Funds to explore:

1. Fidelity ZERO Large Cap Index (FNILX)
The Fidelity ZERO Large Cap Index mutual fund is part of the investment company’s foray into mutual funds with no expense ratio, thus its ZERO moniker. The fund doesn’t officially track the S&P 500 – technically it follows the Fidelity U.S. Large Cap Index – but the difference is academic. The real difference is that investor-friendly Fidelity doesn’t have to cough up a licensing fee to use the S&P name, keeping costs lower for investors.

Expense ratio: 0 percent. That means every $10,000 invested would cost $0 annually.

2. Shelton NASDAQ-100 Index Direct (NASDX)
The Shelton Nasdaq-100 Index Direct ETF tracks the performance of the largest non-financial companies in the Nasdaq-100 Index, which includes primarily tech companies. This mutual fund began trading in 2000 and has a strong record over the last five and ten years.

Expense ratio: 0.5 percent. That means every $10,000 invested would cost $50 annually.

3. Invesco QQQ Trust ETF (QQQ)
The Invesco QQQ Trust ETF is another index fund that tracks the performance of the largest non-financial companies in the Nasdaq-100 Index. This ETF started trading in 1999, and it’s managed by Invesco, a fund giant. This fund is the top-performing large-cap fund in terms of total return over the 15 years to Sept. 2021, according to Lipper.

Expense ratio: 0.2 percent. That means every $10,000 invested would cost $20 annually.

4. Vanguard S&P 500 ETF (VOO)
As its name suggests, the Vanguard S&P 500 tracks the S&P 500 index, and it’s one of the largest funds on the market with hundreds of billions in the fund. This ETF began trading in 2010, and it’s backed by Vanguard, one of the powerhouses of the fund industry.

Expense ratio: 0.03 percent. That means every $10,000 invested would cost $3 annually.

5. SPDR S&P 500 ETF Trust (SPY)
The SPDR S&P 500 ETF is the granddaddy of ETFs, having been founded all the way back in 1993. It helped kick off the wave of ETF investing that has become so popular today. With hundreds of billions in the fund, it’s among the most popular ETFs. The fund is sponsored by State Street Global Advisors — another heavyweight in the industry — and it tracks the S&P 500.

Expense ratio: 0.09 percent. That means every $10,000 invested would cost $9 annually.

6. Vanguard Russell 2000 ETF (VTWO)
The Vanguard Russell 2000 ETF tracks the Russell 2000 Index, a collection of about 2,000 of the smallest publicly traded companies in the U.S. This ETF began trading in 2010, and it’s a Vanguard fund, so it focuses on keeping costs low for investors.

Expense ratio: 0.10 percent. That means every $10,000 invested would cost $10 annually.

7. iShares Core S&P 500 ETF (IVV)
The iShares Core S&P 500 ETF is a fund sponsored by one of the largest fund companies, BlackRock. This iShares fund is one of the largest ETFs and it tracks the S&P 500. With an inception date of 2000, this fund is another long-tenured player that’s tracked the index closely over time.

Expense ratio: 0.03 percent. That means every $10,000 invested would cost $3 annually.

8. Schwab S&P 500 Index Fund (SWPPX)
With tens of billions in assets, the Schwab S&P 500 Index Fund is on the smaller side of the heavyweights on this list, but that’s not really a concern for investors. This mutual fund has a strong record dating back to 1997, and it’s sponsored by Charles Schwab, one of the most respected names in the industry. Schwab is especially noted for its focus on making investor-friendly products, as evidenced by this fund’s razor-thin expense ratio.

Expense ratio: 0.02 percent. That means every $10,000 invested would cost $2 annually.

9. Vanguard Total Stock Market ETF (VTI)
Vanguard also offers a fund that covers effectively the entire universe of publicly traded stocks in the U.S., known as the Vanguard Total Stock Market ETF. It consists of small, medium, and large companies across all sectors. The fund has been around for a while, having begun trading in 2001. And with Vanguard as the sponsor, you know the costs are going to below.

Expense ratio: 0.03 percent. That means every $10,000 invested would cost $3 annually.

10. SPDR Dow Jones Industrial Average ETF Trust (DIA)
You don’t have a lot of choices when it comes to ETFs tracking the Dow Jones Industrial Average, but State Street Global Advisors comes through with this fund that tracks the 30-stock index of large-cap stocks. The fund is definitely one of the earlier ETFs, having debuted in 1998, and it has tens of billions under management.

Expense ratio: 0.16 percent. That means every $10,000 invested would cost $16 annually.

Bonus Funds

Here is the list of funds that I’ve invested in:

11. Schwab Total Stock Market Index Fund® (SWTSX)
Type: Mutual Funds Symbol: SWTSX Net Expense Ratio: 0.030%

Objective: The fund’s goal is to track the total return of the entire U.S. stock market, as measured by the Dow Jones U.S. Total Stock Market IndexSM.

12. To invest in Real Estate ETF, we’ve traded funds such as the iShares Core U.S. REIT ETF (USRT) and the ALPS Active REIT ETF (REIT)
Fund Strategy in Real Estate US Market: The investment seeks total return through dividends and capital appreciation. The fund will, under normal circumstances, seek to achieve its investment objective by investing at least 80% of its net assets in publicly traded equity securities of REITs. It will primarily invest in publicly traded common equity securities of U.S. REITs. The fund may also invest a portion of its assets in publicly traded common equity of U.S. real estate operating companies (not structured as REITs), publicly-traded preferred equity of U.S. REITs and real estate operating companies, and cash and cash equivalents. It is non-diversified.

13. To invest in Gold, other precious metals, and special Minerals, research funds such as the (OPGSX) and (GDX)

The Invesco Oppenheimer Gold and Special Minerals Fund (OPGSX), founded in 1983, seeks long-term capital appreciation. The fund’s manager, Shanquan Li, invests in the stocks of mining companies that are focused on gold and other precious metals. The fund has a net expense ratio of 1.17% and total assets of $1.9 billion. The fund’s five-year average annual return is 12.49%. Primary holdings include Barrick, Kirkland, Newmont, and Evolution Mining. Gold makes up the majority of the portfolio at 82% of assets. The fund has an above-average rating when compared to funds in its category.

14. To invest in the Energy market, we’ve traded funds such as (ENB), (SPWR), (CEF), (GDX)  

Energy exchange-traded funds (ETFs) invest primarily in stocks of natural gas, oil, and alternative energy companies. The securities within an energy ETF’s portfolio include major companies such as Enbridge Inc. (ENB), as well as smaller, fast-growing companies in the sector such as SunPower Corp (SPWR).

15. To invest in the technology market, we’ve considered funds such as the (FDN), (XLC), (VGT), Amazon.com (AMZN), Apple (AAPL), Facebook (FB), Tesla (TSLA), Zoom Video Communications (ZM)

The technology sector is the category of stocks relating to the research, development, or distribution of technologically based goods and services. The S&P 500’s information technology sector had one of the best-performing stocks of all sectors in 2021 – despite the first-quarter drop–returning 44% versus 16% for the broader index. For details on technology funds, check out this article HERE.

How to buy an index fund

You can buy or trade an index fund at your investment firms such as Webull or Schwab.

While trading index funds offer many benefits, keep in mind that there’s always a risk when you invest.

Remember, before you invest or implement any investment strategy, please do your own research and consult with your financial advisors.

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Happy Investing!


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DISCLAIMER: The content of our blog is for educational purposes only. I’m NOT a financial advisor, accountant, tax expert, or lawyer. If you need a financial advisor. Please consult a licensed professional in your city if you need financial and/or other professional services. Investing of any kind involves risk. While it’s possible to minimize risk, your investments are solely your responsibility. It’s imperative that you conduct your own research before investing. I’m merely sharing my opinion with no guarantee of gains or losses on investments.

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