What’s the deal with Index Funds?

Have you heard of these things? Hmm’ing and haw’ing over what they are? Well, hmm and haw no more! I’ll give you the scoop on Index Funds, and explain why these types of mutual funds may be some of the better fund picks for your portfolio if you’re a newbie investor.

INDEX FUNDS EXPLAINED

Remember those days in high school when you had that massive 400 page Chemistry text book and you needed to find information on some crazy chemical like uranium? Where did you flip to?

Probably to the very back of the book – where the INDEX was. In book terms, the index is where ALL of the book’s content lies. It’s all-encompassing.

Now, think of an index fund in the same way in the investing world. It’s an all-encompassing mutual fund that is filled with tons of stocks, bonds, commodities etc, which tracks or matches a particular market in different areas of the world. You can buy index funds that are focused on the markets in Canada, US, Europe, Australia…. you get the picture.

 

Let’s check out an example:

This is a screenshot of a Canadian e-Series Index Fund with TD. As you can see, the top 10 holdings are reputable Canadian companies that you’ve more than likely heard of.

THE BEST PART OF INVESTING WITH INDEX FUNDS?

  1. Low MER: When you buy index funds, you’re diversifying your portfolio without the day-to-day buying and selling powers of money managers who actively trade funds. Some of the Index Funds that we invest in have MERs as low as 0.33.
  2. Almost all index funds pay out a dividend which can either be re-invested or paid out in cash. This is AH-mazing as we love anything that compounds interest for long-term financial growth!
  3. They’re great for newbie investors who want to take full control of their portfolio and finances. Since you’re basically buying a handful of stocks, bonds, commodities etc, your portfolio will already be diversified and you won’t need the help of a financial advisor.

If you’ve been following along since my first post, you probably understand the love I have for Index Funds. I’ve been holding them within my TFSA and RRSP since the age of 18 because they’re so darn easy to buy as investments, and do relatively well on a yearly basis. If you’re ready to start putting some money aside but still feel like you need a small push, you can always contact me for more help!

 

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