Index funds are another financial market investment opportunity that are becoming increasingly popular. In this article, we will go through the best index funds to trade in 2021. Here you will find all the necessary information. Index funds are attractive because they are passively managed, show an overall better performance, have lower fees, and deliver higher results compared to an actively managed fund.
These financial funds are grouped or focused depending on their sector, industry, or geographical area. Some of them can be dedicated to, for example, healthcare, emerging markets, oil, technology, energy, gold, or other industries. Index funds usually follow stocks or bonds, and they can trail different types of assets such as large stocks, small stocks, international stocks, etc.
What is an index fund?
An index fund is a type of mutual fund. It is a pool of money gathered by several traders to invest in stocks, commodities, bonds, and other securities. However, index funds have the particularity of being a portfolio constructed to match or mirror the performance of a financial market index.
Index funds are traded through a broker that offers mutual funds. Their value is calculated at the end of the day with a system called Net Asset Value. Investors who usually wait before negotiating a new transaction, like investing in index funds. Also, their idea is to beat the market and make profit in the long run.
What are the trading hours for index funds?
Index funds can be traded once a day and only after the market closes. Their price is calculated using the Net Asset Value, which is based on the closing price of the portfolio. Index funds are popular because of their diversified portfolio, which minimizes the probability of big losses.
In the same line, index funds have lower costs because they are not actively managed. When a fund is passively managed, the expense ratio is smaller. Thus, you can benefit from the market at a low cost. Also, you can make money from anywhere in the world as long as you have an internet connection and a screen.
Trading index funds in 3 steps
Open a trading account
You must first choose a broker that has access to mutual fund trading, or a company specialized in mutual funds. You can sign up by clicking on their registration button and filling in your basic personal information such as name, password, number, and email. They will send a verification code so you can confirm your personality and activate your account.
Choose index funds
As soon as your account is activated, you will be allowed to make your first deposit. You may be asked for a minimum deposit and offered different deposit methods like credit card, debit card, bank wire transfer, and epayments like Nettler and Skriller.
Place your trade
Once you have an active account that is funded, you can use this balance to buy index shares. After having seen the index you want to follow, you can choose the index fund that tracks it, and see if it fits your budget.
Where can I trade index funds?
You can trade the best index funds through an index fund provider or a broker that offers this kind of securities. Unlike a mutual fund provider, a broker can offer you tools, advanced trading screens, and platforms.
When choosing where to trade, it is a good idea to look at the fees and commissions the broker charges. Also, pay attention to access to education and research sections since they can help you deepen your knowledge or read about breaking news.
Since trading through brokers is the most favorable option, we have added a table below with the best brokers in 2021. We have shortlisted them because of their regulations, customer support, and transparent fees and commissions.
Which is the best index fund to trade?
The best index fund will depend on which underlying assets and what index you want to track. To help you, we have chosen our top 5 best index funds to trade. These are the best index funds to trade in 2021 based on their historical performance.
Top 5 index funds to trade in 2021
- SWPPX - Schwab S&P 500 Index Fund
- VOO - Vanguard S&P 500 ETF
- FNILX - Fidelity ZERO Large Cap Index
- PREIX - T. Rowe Price Equity Index 500 Fund
- FXAIX - Fidelity 500 Index Fund
SWPPX - Schwab S&P 500 Index Fund
SWPPX dates back to 1997 and tracks the total return of the S&P 500 by following 508 US holdings. It has a total of $50.92 billion worth of assets. During 2020, it had an annual total return of 18.39%.
VOO - Vanguard S&P 500 ETF
Since 2010, this index fund has followed US stocks selected by the S&P 500 committee. It now has $630.67 billion worth of net assets. It showed a positive performance in 2020 with 18.35% as its annual total return.
FNILX - Fidelity ZERO Large Cap Index
FNILX initiated in 2018 and now has $2.96 billion worth of assets under management. In 2020, it had a beneficial annual return of 21.12%. Its portfolio composition is made up mostly of stocks (99.47%).
PREIX - T. Rowe Price Equity Index 500 Fund
PREIX began in 1990 and has a total of $31.9 billion in assets under management. This index fund had 18.19% worth of annual total return in 2020. Its overall portfolio composition is assets that include big companies like Apple and Microsoft.
FXAIX - Fidelity 500 Index Fund
FXAIX was founded in 2011 and tracks the S&P 500. Its first major market sector is information technology followed by healthcare. In 2020, it had an annual return of 18.40%. It now holds a total of assets valued at $287.1 billion.
Expert tip on investing in index funds
If you want to trade index funds successfully, the first tip is to fully understand how they are traded, which ones can be good for you, and the fees and commissions you will be charged with. In other words, when it comes to entering the financial market, knowledge is key. Although index funds are not bought and sold during market hours, but after them, it is still important not to let your emotions overpower you. You might be watching the market during the day and accumulating an emotion that could blind you when deciding what you want to do with your index funds. Remember, the market can both increase or decrease your profit, but this will depend on how you react.
Why trade index funds?
You can trade index funds if you want to enter the market with a diversified portfolio and invest in a lower risk fund. You will be able to track the underlying assets of a certain index like the S&P 500 without actually trading stock.
Index funds are favored by many traders because of their benefits. One of them is that it allows you to spend less time on a trading platform. To access them, you only need a screen and an internet connection. They are a good idea if you want to invest with lower risk and pay fewer fees or commissions compared to other assets.
It is important to stay cautious because the prices can go in both directions, which will depend on the market sentiment and its reactions. Sometimes breaking news can affect a certain area but not influence another one. That is why you must be on top of what is happening in the world and how it can affect your investments.
Frequently Asked Questions
ETFs are bought and sold on an exchange. Index funds are traded only when the market closes. This is when will you know its value and decide what to do with your funds.
They can be profitable only if you know how to manage them. With knowledge and emotions under control, you will know when to buy and sell or how to react.
This will depend on your needs. You could be going for a long-term investment or maybe you like to buy and sell more often.
Index funds are already safer than other assets like stocks. They have good returns over time and allow you to have access to a diversified portfolio
They can be for both beginners and experienced. You must only keep your goal in mind, and if you can reach it trading index funds.
No, index funds can’t be traded 24/7. The opportunity opens once the market closes, and you have the final value of your index fund.