Why index funds?
When I learned financial class at my university, they only teach the rule diversifying the investment. But how? The question I can’t answer before knowing the index funds. Index funds invest in different properties in a single contract. The number of stocks or bonds can up to hundreds. So, the investment is highly diversified even you only invest in a single fund.
Nowadays, it’s been some sort of trend that more and more people put their money on the index fund. And some funds can be bought through stock markets and those funds are called ETFs. ETFs usually have a lower fee and real-time trade during the operating hours in exchanges. This makes it suit for large buyers, short term investors and long term investors alike.
Since it meets the philosophy I believe, I started investing a year ago.
The only funds I have invest before were money funds. It provides higher interests than banks but has nearly the same risk(especially in China). As I worked for a year, my money accumulated. The amount of money funds in my account becomes too large and I can’t find other ways to maintain or increase them.
Therefore, I started to research the funds on stocks and bonds.
My stock fund investment starts with funds main constrain domestic stocks. The dividend funds, CSI 300 index and Hangseng index are my primary investments. Later in the year, I add S&P 500, DAX and Nikkei 225 in my portfolio. My principal is diversifying stock investments to different countries by using the most popular index in that country’s market.
One of my main concerns about funds is the dividend. The fund and company in America are usually allocating the dividend many times in a year. But in my country, they don’t do this very often. Periodically allocate dividends means you don’t need to sell funds for money. When you have a large amount of share, it can become another income too.
Besides, the fees of index funds are higher than in developed countries. So, I need to watch new funds with lower fees and high willingness.
Some reading recommendations
Before my investment journey of index funds, I read several books. If you are interested in investing, whether funds or stocks, they will help a lot. I learned a lot from them.
- Common sense on mutual funds, by John C. Bogle
- Unconventional success, by David F. Swenson
- The intelligent investor, by Benjamin Graham
The first book Common sense on mutual funds by John Bogle tells you some fundamental knowledge of funds. Index funds are one kind of mutual fund as well. John Bogle is the founder of the company Vanguard and designed a popular index fund S&P 500.
The second book Unconventional Success by David Swenson is mainly on building an investment portfolio. He is the CIO of Yale University. Under his management, the property of Yale University shows a much higher increase than other universities in America.
The intelligent investor by Benjamin Graham talks about different investment portfolio strategies. The author himself is a pioneer in value investment and influenced many investors as well.
Due to the ability to diversifying, index funds become a great tool for personal finance. In the long term, choosing funds that represent the market of major developed countries allows maintaining and increasing the wealth of you.
The invest decisions should be made after cautious research.