Index Tracking Funds Explained
As the name suggests, the index tracker simply has the aim of tracking the movements of a particular index, and therefore as a result if that index improves by say 5% over a set period of time, then the aim of the fund will be to also deliver that level of return.
Because they tend to simply have an amount of shares in a range of companies and then largely sit on it, this means that less management is needed of this fund compared to some other types. As mentioned in one of the other articles annual fees for funds ranges from around half a percent right up to around two percent in the main, and this one would therefore fall at the bottom of the range as there is relatively little active management of the fund needed.
Another product, the ETF explained elsewhere - exchange traded fund - do the same sort of thing, except of course in their case they are traded like shares. For those who feel that the stock index they choose is going to rise over time but of course would find it impractical to buy stocks in virtually all the companies to deliver that average return, then the attraction of buying into a fund that holds a large range of those stocks is clear. And of course since many people do not have great faith in fund managers or the actual ability to beat the market - other than through luck, which always runs out, then why pay huge fees to fund managers who are basically making informed guesses with your money for a much greater management fee - that's the view of quite a few people, whether it is yours or not is up to you!
More investment related articles:
- Reading the directors' deals in their companies shares
- Stocks, shares, and keeping track of your portfolio
- Questions to ask before investing
- Choosing your investment portfolio type
- Exchange Traded Funds explained
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