How do I use the Index Fund Calculator?
The index fund calculator above provides expected profits from selling shares in an index fund. You must input the index fund name, the amount you invested, and how long you have held the index fund. From here, you can understand your expected profits and ROI from the sale of the index fund.
How do index funds work?
Index funds are a type of investment constructed to match or track certain stocks, industries, or other parts of financial markets. Index funds are a type of mutual fund, or exchange-traded fund (ETF), focused on a specific part of the economy.
People invest in index funds because they give investors broad market exposure, which reduces risk. Index funds are considered less risky than investing in individual stocks because they act as a hedge against volatility from a company or sector.
Further, when you invest in an index fund, you are investing in a small piece of each company within the index fund. This means index funds are an affordable way to expose yourself to companies with high stock prices.
For instance, the Standard & Poor’s 500 Index (S&P 500) is one of the most popular index funds among investors. The S&P 500’s price is based on the top 500 U.S. companies based on market cap and other criteria.
Experts consider index funds a safe investment. Many investors suggest you invest in index funds as a core piece of your portfolio holdings. You should consider index funds as secure and crucial as IRAs and 401(k) accounts.
Can index funds go to zero?
Technically, index funds can go to zero. However, it is considered nearly impossible due to their extreme diversification and absence of human intervention as a matter of investment policy.
When you invest in an index fund, you invest in tens, hundreds, or even thousands of companies. The advantage of index funds is that if one company fails, numerous other companies still support the index fund price.
Every stock in the fund would have to go to zero for an index fund to go to zero. This scenario is impossible and would mean that the economy has completely collapsed. If this happens, your index fund holdings are the least of your problems.
Because most index funds will never go to zero, index funds offer a sound investment to beginner and long-term investors. Your ROI might be lower than individual stocks, but your risk is also lower.
What index fund should I invest in?
Like stocks, choosing what index funds to invest in will depend on you. Different index funds focus on various industries, risk factors, types of companies, assets, and more.
Here are some of the most popular stock indexes in America:
Standard & Poor’s 500 Index Fund (S&P 500)
The S&P 500 is one of the most iconic indexes. Many investors, news agencies, and governments use the S&P 500 to gauge the economy’s health daily.
Dow Jones Industrial Average
The Dow Jones is another iconic index used to gauge the economy’s health. The Dow Jones tracks 30 companies from multiple industries except transportation and utilities. Compared to the S&P 500, Dow Jones is more selective. However, Dow Jones selects only 30 companies to increase return potential.
The Nasdaq Composite
Unlike the S&P 500 and the Dow Jones, the Nasdaq Composite is focused on technology-related companies. Technology companies like Apple, Microsoft, Amazon, and Google make up about half of the index’s value. Other companies in tech-related sectors like healthcare and financial services account for the other half.
The Nasdaq Composite is an excellent example of a focused index fund. The index fund allows investors to invest in numerous high-growth companies while hedging against volatility in one or two of these companies.
Vanguard 500 Index Fund – Admiral Shares (VFIAX)
This fund is similar to the S&P 500 and tracks a list of 500 U.S. companies. These companies make up about 75% of the U.S. stock market value.
Where can I invest in index funds?
You can invest in index funds anywhere you invest in stocks. The best place to invest in index funds is with a stockbroker. Many stockbrokers work online and provide investors with many tools and investment options.
Some examples include TD Ameritrade, Fidelity, ETrade, Robinhood, and more. Many stockbrokers offer counseling, training, and other resources to help get you started.