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How does putting money into an Index Fund work?

Mutual Funds, Hedge Funds and ETFs

How does putting money into an Index Fund work?

Postby rhyd » Mon Apr 22, 2013 7:44 pm

For ex. one that tracks the S and P 500. Say I was going to put $1000 into one of these funds within the next couple days.

I'm not looking for advice. I'm looking to educate myself and this is not the only place I will do my research.
rhyd
 
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How does putting money into an Index Fund work?

Postby edmund » Mon Apr 22, 2013 7:46 pm

When you put money into an index fund, the fund managers take your money (less a management fee) and buy the underlying stocks of the index, and/or index ETFs, and/or other index funds, and/or index futures and/or index options. The objective is that fund's asset value mimics the performance of the index. Of course you can also buy leveraged index funds (up to 300% of the index), inverse funds (where you make money if the index declines), or leveraged inverse funds (up to 300% of the inverse of the index).

All of these are available as ETFs as well. Personally, I trade 300% leveraged and inverse ETFs in my 401K and IRA accounts.
edmund
 
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