Index funds cannot go to zero ? Am I right ? e.g. take the S&P 500 ETF index for SPY.
There are 500 stocks in SPY. Should one stock declares bankruptcy or gets de-listed, it is removed from the index fund SPY and a new stock will be added.
So I think even in a bearish market, the price value of SPY or any index funds including Dow Jones, Hengseng, Nekki, etc will never have a price value of zero.
Should any stock(s) in anyone of these index funds goes belly up, the stock(s) just gets removed or de-listed from the index and a new stock will be added.
Am I right ? Or am I missing anything ?
Even if we have the worst case scenario similar or more devastating than the 1929 market crash, the price of any Index Funds cannot go
to zero value.
Please comment and give me your insight.
Thanks in advance
2007-11-26 22:23:09 · 5 answers · asked by Vash the Stampede 2 in Business & Finance ➔ Investing
what are the odds of every one leaving new your on the same day or over short period of time == it will never happen - not to worry be happy!!!
2007-12-04 07:08:59 · answer #1 · answered by Anonymous · 0⤊ 0⤋
Well, anything in life is possible but you should ask what is the probability of this happening? If all the 500 companies belly up, then most probably the country has gone bankrupt as well.
What is the likely hood for that to happen, it is very very small, yes than you can say that the index fund cannot go to zero
2007-11-27 07:04:17 · answer #2 · answered by Anonymous · 0⤊ 0⤋
Anything is possible. What if all 500 companies go bankrupt at the same time? The S & P might be able to switch companies. But the mutual fund manager would not have money to buy stocks in the new companies.
Don't lose sleep over this. It will never happen.
2007-11-27 06:32:46 · answer #3 · answered by regerugged 7 · 1⤊ 0⤋
I believe the S&P 500 is a simple weighted average, weighted by the float of each company. Meaning a company with a larger amount of publicly traded shares has a larger share of the index. The only way it could go to 0 then is if all 500 companies went bankrupt at the same time.
2007-11-27 06:31:17 · answer #4 · answered by days_o_work 4 · 0⤊ 0⤋
Like mentioned before, all the companies in a certain index would have to go bankrupt. That is why index funds are the best to invest in, especially in a down market.
2007-11-27 23:04:37 · answer #5 · answered by Anonymous · 0⤊ 0⤋