Index funds are attractive because you can invest in a pool of securities that track the market, so you enjoy peace of mind while knowing that your portfolio is diversified. These funds are grouped according to the sector, industry, or geographical area, among others. In this article, we will go through the best index funds to trade in 2021 and how you can buy these assets.
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. However, unlike a mutual fund provider, a broker can provide tools, advanced trading screens, and a user-friendly platform.
When choosing where to trade, it is a good idea to look at the fees and commissions charged by your broker. Also, pay attention to the education and research sections since they can help you enrich your knowledge or read about breaking news that might affect your position.
Since trading through brokers is the most favourable option, we have provided a list of the best brokers this year. We have shortlisted them because of their regulatory status, customer support, and transparent fees and commissions.
What Are Index Funds?
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. 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 and international stocks.
Index funds are constructed to match or mirror the performance of a financial market index and are traded through a broker that offers mutual funds. Their value is calculated at the end of the day in terms of Net Asset Value (NAV). NAV is the total market value of all the securities included in the fund.
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 underlying assets, which minimise the probability of big losses.
How to Trade and Invest in Index Funds
Open a Trading Account
First, you should choose a broker that has access to mutual fund trading. You can sign up by clicking on the registration button and fill in your personal information such as name, password, number, and email. They will send a verification code, so you can activate your account. You will also need to provide proof of identity and address to comply with the KYC regulations.
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 amount via different deposit methods like a credit card, debit card, bank wire transfer, and e-payments like Neteller and Skrill. Now, select the index fund that you want to trade. Consider the historical NAV and returns before you choose a fund.
Place your Trade
Once you have an active funded account, you can use this balance to buy index shares. After having selected the index you want to follow, you can choose the index fund that tracks it. Monitor the index fund regularly and adjust your position if required.
Top 10 Index Funds to Trade
- SWPPX - Schwab S&P 500 Index Fund
- Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX)
- FNILX - Fidelity ZERO Large Cap Index
- PREIX - T. Rowe Price Equity Index 500 Fund
- FXAIX - Fidelity 500 Index Fund
- VIGRX- Vanguard Growth Index
- FNCMX- Fidelity NASDAQ Composite Index
- VHDYX- Vanguard High Dividend Yield Index
- NOMIX- Northern Mid Cap Index
- VIMSX- Vanguard Mid Cap Index
1. 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 in assets and invests in US companies with large market capitilzations.In 2020, it had an annual total return of 18.39% and there is no minimum investment.
2. Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX)
The Vanguard VTEAX tracks the US municipal bond market. It is an excellent pick for anyone who seeks low-cost exposure to the tax-exempt bond market. However, you need to keep in mind that the minimum initial investment is $3,000. As of this writing, the 52-week high is $22.19, and the 52-week low is $21.61.
3. FNILX - Fidelity ZERO Large Cap Index
Fidelity established FNILX in 2018 and now has $2.96 billion worth of assets under management. In 2020, it had an impressive annual return of 21.12%. Its portfolio composition is made up mostly of stocks (99.47%).
4. PREIX - T. Rowe Price Equity Index 500 Fund
PREIX was created in 1990 and had a total of $31.9 billion in assets under management. This index fund had an 18.19% annual total return in 2020. Its overall portfolio composition includes different popular stocks, such as Apple and Microsoft.
5. FXAIX - Fidelity 500 Index Fund
FXAIX was founded in 2011. 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“ Index funds are usually meant for investment in the long run and may not show quick gains like other stocks. Keep in mind that a diversified portfolio is key, especially if you want to manage risks while maximising your returns. Always invest only in assets that you’ve thoroughly researched before adding them to your portfolio. ”- Mauricio Carillo
Why Invest in Index Funds?
You can trade index funds if you want a diversified portfolio while investing in a lower risk fund. Additionally, you will be able to invest in the underlying assets of a certain index, such as the S&P 500, without actually trading individual stocks. It can be impossible to invest in all of these companies as a retail investor, so index fund investing provides this excellent opportunity.
Many traders favour index funds because of their benefits. One of them is that it allows you to spend less time on a trading platform since it is a passive investment. This allows you to make investments without spending your time on significant research, especially when compared to investing in individual assets.
Frequently Asked Questions
Yes. Most countries consider profit from trading as a taxable activity. Check your local taxation laws before trading.
Yes. Some brokers may provide additional services such as bot trading for their users. A user could also make use of stop-loss and take-profit to automate buying/selling. Check with the broker in advance if such automated services are available.
Users should always select a regulated platform for trading and use additional security measures such as 2FA to secure the trading account.
ETFs are bought and sold on an exchange. Index funds are traded only when the market closes. Unlike mutual funds, ETFs can actually be traded like stocks.
Depending on the type of index fund, you can stay up to date by subscribing to different news platforms. Most online brokers also offer automated news related to the assets in your portfolio.
No. Index funds are only available once per day after the market closes.