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Financial Advisor Gaithersburg MD: What is an Index Fund?

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What is an Index Fund?

Our financial advisors can lead you in the right direction for investing in your future today! First, what is an index fund? An index fund is a type of mutual fund. Index funds have specific rules of construction and are used to track the components of a specific market index. In other words, a market index can show the changes of an entire stock market over time, and the index fund tracks the changes and produces returns accordingly.

Benefits

Financial advisors will cite several benefits for the use of index funds. Index funds are type of passive investment for people who don’t want to put in the time, work, and effort to fully understanding investing. Also, when an actively managed fund has positive production it attracts a lot of other money, which tends to drive up the cost of the stocks that are doing well.  This may be viewed as another reason to consider index funds.

Market Exposure

Index funds also allow for more market exposure, which leads to lower operating costs. Some index funds can expose you to hundreds or thousands of securities, and this may reduce risk due to more diversification. Our financial advisors can help you determine if index funds are appropriate for your situation.

If you need more information about index funds, contact CIC Wealth today; our index fund advisors are here to help.

An exchange-traded fund (ETF) is similar to a mutual fund that tracks a specific stock or bond index, such as the Barclays Capital 1–3 Year Treasury Index. ETFs trade on one of the major stock markets and can be bought and sold throughout the trading day, like a stock, at the current market price. And, like stock investing, ETF investing involves principal risk—the chance that you won’t get all the money back that you originally invested—market risk, underlying securities risk, and secondary market price.