What an index fund is, as well as the top three index funds, even one of them, having a zero expense ratio. First, let me briefly explain what an index fund is. An index fund is just a fancy way of saying hundreds. If not, thousands of stocks are all in one basket called a fund, this fund could be have different names. You may have heard of the dow jones, the s p 500, for example. The s p 500 is consisted of 500 of the most successful companies in the united states. So these are google tesla, amazon, apple, facebook. Those are some of the most popular companies all compiled in the s p, 500, and if one company isn’t performing well, then it’ll be replaced by a better performing company. So the benefits of having multiple stocks compared to just one in an index fund is far greater. Here are four reasons why index funds are so popular first is that you get active returns so just like all stocks, the s p 500 will fluctuate, so it can go up. It could go down, but over the course, since it started, it’s gained an average historical return of 10. So that means, if you put in 10 000 every year, you would get a thousand dollar return. Ten percent now some years it could be like twenty percent return. Other years it could be five percent return, so that’s why the average is a ten percent. Return.
Second reason is diversification, so investors like index funds because they have a lot of different diversification. You could have tech companies in there. Energy companies, health companies, pharmaceutical companies, all in one index fund, so you’re getting exposure to a lot of different markets all under one fund. So if one market or one sector isn’t performing as well, you have the tech sector or you know the nurse or hospital sector. Sorry that are performing better, and so it picks up. The slackers third reason is lower risk index. Funds have much lower risk because they have a big diversification of different stocks compared to an individual stock, for example. Tesla may be doing really well could be six. Seven hundred dollars, but all it takes, is one piece of news saying that every single tesla card needs to be recalled and the stock price will drop down to a hundred dollars. If you had tesla in an index fund, it really wouldn’t be dented too much it wouldn’t go down, even if tesla dropped hundreds of points. In a day, your index fund wouldn’t experience that loss. Fourth reason is low cost index funds cost very small amount compared to mutual funds or hedge funds. The expense ratios, which basically means how much they’re charging for every ten thousand dollars, could be around three dollars or ten dollars every year, which is very cheap compared to hedge funds, which could charge hundreds of dollars per year. Let’S talk about the top three index funds.
The first one is going to be the fidelity zero large cap index fund – f n, i l x, so this one is really popular because it cost zero dollars. There’S zero expense ratio, which means for every ten thousand dollars invested. It cost zero dollars annually. This doesn’t really attract the s p 500, but it is more the fidelity u.s large cap index. So if we look at the chart at the one year, it actually gained 16 year to date, return, which is pretty good that’s, better than 10 percent of return. That most index funds do over the years. So the reason why this is so popular is because it has a zero expense ratio and you may be wondering what’s the catch. Well, the catches you need to have an account with fidelity to invest in it. Now. Fidelity is just basically saying: hey we’ll, give you a zero expense ratio index fund, but you just have to bank with us and they’re, hoping that they get more money on the back end same way, that a lot of companies have what’s called lost leaders, meaning that They may sell a product in their store that makes zero dollars, but you’re, basically getting the customers in the door same thing with fidelity. They want you in the door. So hopefully, you open up a checking account bank account credit card or whatever other financial services that they have, but the index fund is basically a way to get you in the door and 16 for the year, i think, is pretty good.
The second index fund is the vanguard s, p, 500, ticker symbol, v, o o. So the reason why i like this one so much personally, i am – i have a preference with vanguard, no affiliation, but vanguard is my favorite because of the low expense ratio, it’s completely free to open an account and they have some of the best index funds. So their expense ratio is point. Zero, three percent, which means for every ten thousand dollars invested. It’Ll only cost you three dollars annually and this tracks the s p 500, which means that you’re going to get whatever the s p 500 is gaining then that’s. What you get through voo and the third best index fund is going to be the spyder s. P, 500 etf trust, ticker symbol, s, p y. This one tracks the s: p 500, as well, which you’ll see a threat, a trend with a lot of index, funds tracking the s p 500, because that’s, basically the benchmark of the market. Anyone who’s trying to make any investments in the stock market. Ideally, you want to beat the 10 percent of the s p. 500, if it doesn’t you’re, better off just throwing your money in an index fund like s p y v, o o and track the s p. 500. If you think you could do better than 10 percent uh with still the same low risk, then you have a good investment on your hands, but i think the s p s p y is great.
The expense ratio is point: zero, nine percent, which means for every ten thousand dollars invested, it’ll cost nine dollars annually. Now this isn’t really an index fund traditionally it’s an etf which means exchange traded fund, which means you could trade this on any brokerage account that you have. So if you have weeble, if you have schwab, if you have robin hood, which i’ll have links to those accounts down in the description below where, if you sign up you get free stocks or free free money, but an etf trades differently than index fund still, i Think it’s a great way to just invest your money, low risk and get a 10 return. So let me know down in the comments below which is your favorite index fund. Are you investing in any of these? I would love to know, and if you want to learn some more stock market strategies for beginners, i recommend clicking this playlist right over here. If you want to learn the strategies of how to get started or click, this video down over here and i’ll, see you in the next video.