The indexed investment fund market is getting more expansive, and the offer is becoming more numerous. So when deciding which index funds are the best to choose, It is especially worth considering the objective to be achieved through investment. Some of the areas to keep in mind are
Objective and financial needs
To choose the best-indexed background, the investment objective will have to be considered. What is it for?? Is it to increase heritage? To anticipate the education of children? Or perhaps to prepare for retirement? Asking yourself these questions will be crucial, leading the investor to opt for an index fund with higher or lower risk.
In addition, it will be necessary to consider the financial or liquidity needs that will be had in the future. Usually, indexed funds are adequate to make the wealth profitable in the long term. Therefore, if you want to have the money as soon as possible, using other investment formulas, such as stock exchanges, will be advisable.
Manager of the indexed fund
Although the objective of indexed funds is to replicate their reference index, their behavior may not be the same depending on the manager that markets them. Therefore, it will be necessary to choose a trusted manager or entity regulated by the bank and whose experience serves to suit the needs of each investor.
Geographical areas
You can decide to choose an indexed fund that only invests in one country (China, Japan, or Spain, for example), in one region (Asia, Europe), or worldwide (Global).
Or you could decide to invest in one Global or divide your investment into several, each from one region. Is it better to choose a global indexed fund or several indexed funds from different areas?.
Indexed funds commissions
Choosing an indexed background does not imply anticipating what the behavior of your reference index will be. On many occasions, unexpected events such as the recent coronavirus crisis may make market developments different. However, what can be known about choosing an indexed fund is your costs that, to a certain extent, will mark the profitability of the fund.
For this, before choosing a passive management fund will have to pay special attention to the TER (Total Expense Ratio), which includes the total commissions of the fund (management commission, custody, cost of funds in which it is invested, success commission …). These costs, which can sometimes go unnoticed as they are sometimes implicit in the fund’s management costs, may significantly affect the product’s profitability. Therefore, the lower the TER, the greater the long-term savings.
On average, the total costs of indexed funds are between 0.2% and approximately 0.6%. These are much smaller when compared to active management funds, which are usually above 2%. Of course, this is another of his strengths concerning traditional investment funds.
Liquidity of the fund
Another essential aspect that investors should consider when it comes to hiring an indexed fund is its liquidity. In other words, the volume of assets that this fund has under management since this factor will reflect the excellent reception of the product among investors and provide investor confidence in the manager.
Thus, the indexed fund will be more prominent, and the more liquidity it has. This will give the fund greater diversification and greater capacity to satisfy its investors.
Tracking error
The tracking error is one of the most critical indicators to help the investor choose the best-indexed fund. This indicator measures the divergence between the behavior of the fund and its reference index. Ideally, this type of fund should make the tracking error 0, indicating that the fund is reliably replicating to its index.
Taxation
Like any other investment product, indexed funds must be taxed on the income statement. Like active management funds, these products are taxed on personal income tax within savings income as part of capital gains and losses.
However, passive management funds, specifically those indexed funds, have an additional advantage in their taxation. And it is possible to apply for the exemption for the transfer of investment funds. This benefits investors, as they will not have to pay taxes when they sell their indexed funds as long as they use that money to acquire shares in another investment fund.
Here are the five most popular index funds among private investors, the ones that are being most consulted and requested in Finect.
- Vanguard Global Stock Index Fund
This fund allows you to invest in the 1,600 leading world companies from only a 0.18% commission. Vanguard is the second-largest manager today, second only to Blackrock. John Bogle created it, considered the father of index management. The Vanguard Global Stock Index Fund tracks the performance of the MSCI World Index. And at present, this means having securities such as Apple, Microsoft, Alphabet (Google), Amazon, and Tesla as significant investments. Of course, they barely account for 14% of the portfolio among the five. “If you don’t want to think and want a simple, cheap, and quality investment, this fund is a good alternative.
- Amundi Index MSCI World
It also replicates the MSCI World. Amundi, the largest European asset manager, also has another of the most popular products. A fund can be contracted in Spain from 0.15% in entities such as EBN, MyInvestor, Renta4, Openbank, or Ironía Fintech, among others. “I have hired him for years. In addition to having a meager commission, he is faithful to the world stock market situation. It does not lose even a tenth with any other fund indexed to the world market”, explains Alfonso, a Finect user. The product gains 29% a few days before the end of 2021 and 22% annualized over three years, reflecting the great moment experienced by world stock markets and, especially that of the US, despite the pandemic.
- Amundi IS S&P 500
The third most popular is also offered by the European management giant, which has a range of index funds and actively managed ones. “It is a fund indexed to the S&P 500, with the magnificent returns that this entails in recent years”, as Eduardo Estallo, a financial advisor at Mapfre Asset Management. It can also be hired for a management fee of 0.15%. What is invested in when this index is replicated? As Estallo explains, “the maximum weight is in technology (32.09%),
followed by discretionary consumption (15.09%), health, finance, communication services, industry, non-cyclical consumption, energy and, with much less weight, real estate, materials, and public services”.
Too much weight on the values that rise the most?
The investor must consider that, as is the case with the MSCI World funds, the most prominent positions in the portfolios right now correspond to the five large technology companies of the moment. This happens because they have been the ones that have performed the best in recent years, and, as a consequence, they have been increasing their capitalization and their weight in the indices. For this reason, some remember that this type of investment involves buying the securities that have risen the most in recent years.
Indices are very useful, but it’s like the original sin: the market price tells me how I have to invest. In 2000, Nokia was 70% of the Finnish stock market index, but then what happened and it fell to 10% of its Ibex. For this reason, this firm also offers other types of funds, which invest in indices, but give all values the same weight, such as the MyInvestor S&P 500 Equally Weighted.
For those who prefer to have the exact weighting as the index, the traditional index investment, there are the most diverse options by country. There are both European and emerging equities, like almost any specific country. For example, Imantia offers an Ibex 35 index fund with a management fee of only 0.35%. The investor has to decide in which market they want to invest and select an index fund to replicate their most representative index. And always to the extent that your risk profile allows it.
Easy money challenges (money challenges, 52-week challenge, 52-week savings challenge)
For us all, no matter how aware we are of the importance of saving, at some point in our lives, we have faced debts or other financial obligations when there are still days to receive our salary or even when we receive some extra money. When we check the remaining balance of the cashier, we have no choice but to resign. What do you need to do when you try everything and can’t save?
First, you need to set your savings goal. There are short, medium, and long-term goals. Short-term goals take you weeks or months, medium-term goals are those that you meet in 1 to 3 years, and long-term goals can take more than three years to be achieved.
Now you would be wondering, how can I meet the savings challenges? One of the obstacles we face is using our savings for emergencies. If this is the case, I suggest that you have a separate account to put your emergency fund. This can help you so that you can pay for those expenses that appear unexpectedly and do not resort to your savings.
Review the following questions.- Another point is that you should ask yourself some questions: What do you want to accomplish? How long will it take? And how much do you have to allocate to achieve your goal? Once you answer these questions, you will know precisely where you need to channel your savings. However, you cannot lose sight of those challenges that you will have to overcome along the way.
Try more options. It can be very tempting to have money saved, either at home or in the bank; that is why I advise you to keep your savings in an account where your deposits are blocked until you meet the time set for your goal.
Saving tips to get started
Save some of your money.
If you paid something extremely cheap with a $50,000 or $100,000 bill during the month, indeed, the returns you received will end up becoming “pocket money” that you will spend no matter what. Try not to pay the coins or bills that are leftover from that purchase, have a piggy bank on hand, and deposit those coins or bills.
At the end of the month or the end of the year, you will be surprised to see all the money you could save and that you will surely be able to keep it from an emergency or complicated moment. self-control
Suppose every time you walk through the windows of the shopping malls or browse online, you feel that your body has been invaded by the impulse to buy. In that case, the best cure is to keep your credit or debit cards in a drawer at home, away from us. This challenge will prevent you from indulging in unnecessary luxuries that put you in a bind at the end of the month. Take with you no more than the necessary money.
Reduce expenses
Ask yourself if it is necessary to go out with your friends every weekend, if you have to eat out of the house every day, or if your cell phone is as obsolete as you thought. By changing simple habits, you will contribute to increasing your savings capacity.
Avoid debt
We know it’s difficult, but right now, you have to figure out how to make ends meet without taking on more debt. Making credit card advances could become a more significant expense; If you no longer see another option, try to request a payroll advance or a loan with a friend that does not generate interest charges.
Other fun challenges to save
As 2021 ends and we approach 2022, many of us are probably looking to change past habits and consider new ones. Knowing that there may be difficult times ahead, starting to plan for the future is a conversation we will have whenever a year is about to end.
Saving is the most popular purpose; it is also the most difficult to fulfill but not impossible; the following challenges are a fun way to understand and approach saving, you can start with $100, and in a few weeks, you will end up with significant savings that you can consign in your savings account, invest or keep in a piggy bank for emergencies.
26-week savings
This challenge is ideal if you receive biweekly payments. This challenge is somewhat complicated, but we are emphatic that complex is not synonymous with impossible.
The idea is that you have $15,000 saved (that is, $5,000 in the first week and $10,000 in the second); eventually, in week four, you will have held $50,000. As you can now see, this is a bit difficult to control and follow, but a practical way is to start saving $5,000, and each week, you add $5,000 more.
Keep track, so you don’t waste time constantly figuring out how much you’ll need to transfer. You must understand and follow this savings challenge with confidence; Otherwise, it can be all too easy to give up because of confusion and lack of organization.
The idea is that, by week 26, you have saved about $676,000. If you find it challenging to go five times each week, start this challenge one at a time or simply two at a time. The profit will be less, but the purpose is that you will be surprised at how much you can save.
52-week savings
This challenge will take you a full year and is similar to the 26-week challenge. This is one of the most popular savings challenges; if you are constant in your savings, at the end of a year, you will have saved $1,378,000.
Is that how it works:
$1,000 in savings – week 1
$2,000 in savings: week 2
$3,000 in savings: week 3
$4,000 in savings: week 4
By week 52, when you save $52,000, it will be almost a piece of cake.
For small budgets
This challenge is for anyone budgeting every paycheck; start by increasing the amount you save by $10,000 each week. That is, the first week, he deposits
$10,000 thousand and the second week $20,000.
The good thing is that this challenge has a limit of $60,000, which is perfect for people with smaller budgets. At the end of 26 paychecks (which is about a year), you’ll have an additional $1 million in savings.
How to save money is one of the biggest concerns of families, who often see how the months go by and cannot keep a single dollar. Next, we will put on the table a pervasive challenge that can serve as a guide to saving almost 1,500 dollars a year: The 52-week challenge.
This savings method is articulated so that you can save around 1,500 dollars a year. It is also a method that has become viral in the United States. It has accumulated hundreds of thousands of times shared on Facebook in recent years.
52 Week Savings Method
The procedure is straightforward. It consists of saving an amount of money each week, which will start with one $, and each week, we will increase it by another dollar. Thus, the first week we will save 1 $, the second we will keep 2 $, the third we will save 3 dollars, and so on until week 52, when we will have to save 52 $.
Adding up the savings from every week, we will be able to directly save almost 1,500 $, precisely, 1,378 $. A necessary amount with which we can treat ourselves in the form of travel, decoration, electronics, or whatever we want with a deferred effort and something more bearable than doing it all at once.
However, it is necessary to have willpower and not give up because the money to be separated will increase as the weeks go by. The following weeks will be more challenging than the initial ones.
21 easy ways to live frugally (how to live frugally, live frugally, frugal living tips)
Everyone wants to save extra money, but it’s easier said than done. Finding out how to live frugally and save money can put a dent in your account and give you a sense of financial security in today’s bleak situations!
The ability to save money is often planted. Acquiring and executing this habit requires a conscious and concerted effort, not only on your part but on the part of everyone in the house. Once you get involved, living within your means becomes second nature; all it takes is planning and willpower.
These ideas on living frugally and then saving money are practical and straightforward. Anyone can follow it, whether you’re a stay-at-home mom trying to make the most of her budget or newlywed learning to adjust to married life. An idea on your husband and children too. If everyone in the house can learn to spend wisely, you’ll see what a difference it makes in your savings.
