A Beginner-Friendly Introduction To Index Investing
Once you learn the basics of investing, it's time to start investing. Index investing is the best way to get started for beginners.
Most beginner investors see investing as a tool to reach their financial goals. Their primary concern is to make a decent return while taking low risks. However, picking investments by yourself is a complex undertaking. It requires you to understand the pros and cons of each investment you consider by doing your own complicated and time-consuming research.
While picking your own investments can be very rewarding if your investment thesis turns out to be correct, it can also lead to significant losses if done incorrectly. Therefore, most beginner investors are better off following a passive investing approach that does not require them to pick their own investments. Instead, for most beginners, index investing is the next logical step to getting started with investing.
With index investing, you invest in passively managed, low-cost investment funds that mirror the performance of a subset of the market. As a result, you are guaranteed to match the performance of the market subset without needing to pick assets to invest in by yourself. Simply put, the value of your investments goes up if the market does well, and it goes down when it is declining.
- What is index investing?
- How does index investing differ from active investing?
- What is the history of index investing?
- Why does index investing work?
- What are index funds?
- What types of index funds exist?
- How do index fund shares work?
- How do index funds replicate a market index?
- How can you make money with index funds?
- Do index funds pay dividends?
- How have index funds performed in the past?
- Is index investing risky?
- Is index investing a bubble?
- How can you start index investing?
- How do you pick index funds?
- What are the pros and cons of index investing?
- What rules should you follow to become a successful index investor?
We have written this guide for beginner investors who have just learned the investing basics and are now ready to start investing. If you haven’t learned about the basics of investing yet, we recommend you to read our beginner-friendly guide on the basics of investing first.
Chapters
This beginner-friendly investing guide contains the following chapters. Upcoming chapters are being released once per week.
Introduction
Once you learn the basics of investing, it's time to start investing. Index investing is the best way to get started for beginners.
What Is Index Investing?
Index investing is one of the most popular investment strategies for beginner investors. But what is index investing, and how does it differ from other strategies?
Market Indices
Market indices lay the foundation for index investing. Understanding how they work is essential to understanding index investing and getting started.
What Are Index Funds?
Index funds have been essential in making investing accessible to beginner investors. But what are they, and how do they work?
Types Of Index Funds
Index funds aim to replicate the performance of a subset of the market. However, there are different types of index funds with other objectives.
Index Fund Shares
When you purchase an index fund, you become a partial owner of the fund. But how do the shares you bought work?
Index Fund Replication
Index funds replicate a market index to match its performance. However, there are different ways how an index fund can replicate the index.
Making Money
Index funds replicate the performance of the assets included in the fund. Let‘s explore two ways how you can make money with index funds.
Past Performance
Index funds have been popular because they make investing easily accessible. But how have they performed for investors so far?
Risk In Index Investing
Every investment carries risks. But how risky is investing in index funds?
Market Influeces
Index funds have one of the most significant market shares of all assets. Given their size, you may wonder how index funds influence the markets.
Starting Index Investing
You decided to start investing in index funds. But picking the right index funds requires a few considerations.
Pros And Cons
Every investment strategy has its pros and cons. Learn more about the benefits and downsides of index investing.
Successful Index Investing
These 16 rules will guide you to become a successful index investor, pick the right index funds and build wealth.