What are index funds and how do people make money from them?

Answer 1

Index funds are passively manages funds, meaning that there is no group of fund managers trying to beat the market, just fund managers following a set 'formula'. The S & P 500 index fund own the stock that in the the S & P 500 index formula.

Since index funds don't take a lot of management, the costs are (usually) much lower and because of that index funds, over time, beat the returns of about 80% of actively managed funds.

Because even fund managers can't guess the future and the costs are a drag.

Here is a lot more info on index funds:

http://www.investopedia.com/terms/i/indexfund.asp

http://www.fool.com/mutualfunds/indexfunds/indexfunds01.htm

http://www.moneychimp.com/articles/index_funds/overview.htm

Brokers don't make much from selling low cost index funds, so they sell actively managed funds. This is the result:

"According to the BCT study, which is by far the most complete and comprehensive study to ever attempt to answer this crucial question, the returns of investment advisors are less than people can earn on their own.



For all of our knowledge of MPT and other widely-promoted investment theories, for all of our study, testing and certification as financial planning experts, we still can't plan and execute a portfolio that even comes close to matching the returns that do-it-yourselfers get working on their own.



The implications of these findings for the financial planning community are profound. For anyone who understands compounding, a 1% or 2% performance difference is huge. Over time, investors who earn 1% or 2% more on a portfolio come out much wealthier than those who earn 1% or 2% less.



But we are not talking about a 1% or 2% difference here. The average financial advisor would have to improve his or her performance by 71% to match the returns do-it-yourselfers are earning on their own. Since do-it-yourselfers earn more money each year on their already larger portfolios, they get further and further ahead of the clients of FAs each year."

Answer 2

The term "Index Funds" has taken on many new meanings in the past 7 years.

In general an index fund is an unmanged (no research based stock picking) mutual fund representing some "area" of investing. This could mean;
S&P500 (top 500 largest comanies in the USA).
Mid Cap 400 (400 of the largest "Mid-Cap" companies.
Health Care
Software
Gold Mines
etc.........

The two common types are "open ended" Mutual Funds. The next type are ETF's (Exchange Traded Funds).

Examples:
Vanguard Mutual Funds has the first.
iShares has the 2nd (ETF's)

As the market goes up..... they increase in value. As the market goes down... they lose value. An understanding of the stock market is very important before getting involved in these (or any other stock investment).

Hope this helps!

Answer 3

Penny stocks are loosely categorized companies with share prices of below $5 and with market caps of under $200 million. They are sometimes referred to as "the slot machines of the equity market" because of the money involved. There may be a good place for penny stocks in the portfolio of an experienced, advanced investor, however, if you follow this guide you will learn the most efficient strategies https://tr.im/ed075

Answer 4

Penny Stock is a good way to make high profit. Check this websites http://penny-stock.keysolve.net

In the case of many penny stocks, low market price inevitably leads to low market capitalization. Such stocks can be highly volatile and if you have the right information it's very easy make a lot of money!