28. Index Funds and ETFs

Passively managed funds are index funds - funds that aim to hold securities in exactly the proportion that they are held in within an index and that typically have significantly lower fees that actively managed funds. These products offer market exposure at lower cost - so do ETFs.

Category:

Education

Tags:

• saving
• investing
• money
• markets
• efficiency
• index
• funds
• ETFs
• savingandinvesting.com
• Michael
• Fischer
• business
• economics

[jessica5666]

I have a question. Let's say I want to buy index funds, like Dow Jones, S&P 500. Where do I buy it online?

[savingandinvesting]

@jessica5666 One would open an account with an online broker such as Ameritrade, ETrade, Schwab or another one even through current bank - check rates and understand the product of course, but one could by it through an online broker online (bearing in mind all of the other important concepts like tax savings, diversification etc.) - hope that helps and all the best, Michael.

[dskrilla1]

So what eould be better out of a Mutual Fund and an ETF that are both similar to each other? Say they were both attempting to replicate a particular index, so both had basically the same stocks, which would be better to have?

[savingandinvesting]

@dskrilla1 Largely comes down to costs. If idea to hold index fund for short time (e.g. hedging or trading), then ETFs, as exchange-traded instruments, offer advantages. For long-term investment, index funds often come out ahead, also because of way that reinvest dividends and often no commissions for purchase/sale. Very similar but ETFs target active traders; index funds the dollar-cost averaging investor (as focused on here) - details of products need to be looked at closely! Hope that helps.

[smokenfly514]

index funds are for pussies who think they're being risk averse

[savingandinvesting]

@smokenfly514 Do you say that because you believe that investors should buy higher fee actively managed funds in developed markets (the vast majority of which have been shown to underperform index funds after fees over longer periods) or because you believe they should be less diversified and buy some single stocks?

[lakaskafad]

@jessica5666 You cannot buy shares of the Dow Jones or S&P 500 as they are indexes, not index funds. However, you can invest in index funds/index ETFs by opening an account with an investment management company like the Vanguard Group or Fidelity; they offer a great selection of index funds and indext ETFs. And if you purchase shares of index funds/ETFs that are provided by the firm with which you open your account, you will not have to pay any transaction costs.

[mandi5231]

Thank you for posting this video! It really helped me understand the difference between EFT & Index Funds. Please keep posting!

[smokenfly514]

@savingandinvesting Oh wait you're the guy who made this video. You actually know what you're talking about, sorry I thought you were someone inquiring about where to invest - I like to manage my money on my own, it's just my preference