Investing in equities has historically been very profitable. During the 20th century, in almost any decade, buying equities proved to be a good strategy to preserve purchasing power. However, very few investors in that period will have obtained exactly the results shown by the market averages.
When we talk about the evolution of the stock market and the markets in general, we almost always refer to some index. This index is usually made up of a number of companies, and is intended to represent an important segment of the market. For example, the S & P500, one of the world’s most followed indices, represents the equities of large companies in the United States. Its evolution is closely linked to the evolution of the North American economy and companies.
Today we live in a highly globalized world, and financial markets are increasingly interconnected. Likewise, more and more investors are observing global indices that seek to reflect the evolution of the economy worldwide.
The tools of passive investment
Many private investors realize the difficulty and work involved in obtaining returns above the market average. Some prefer to hire professional management for their money, investing in actively managed funds, where a professional investor makes decisions and executes purchase and sale orders for assets with the objective of obtaining good returns. However, active management implies higher commissions: this professional service in author funds has a cost that translates into higher management commissions.
As an alternative to this active management, individual investors can also implement a passive investment strategy, which consists of investing in all the companies that make up an index, so that we obtain the average profitability of that index. Logically, it is not that each investor manually copies the distribution of an index in his portfolio, it would not be operational and more expensive.
Instead, there are investment vehicles that allow us to follow that strategy in an automated way, and that also imply lower commissions than active management. Those tools available to the investor are funds, both traditional and indexed and listed ( ETFs ).
The fees of the funds that replicate indexes (indexes and ETFs) have lower management fees than the funds of active management, since it is not necessary for any professional to carry out analyzes. The fund simply invests on a weighted basis in the companies that make up the index, so that the fund’s performance will be almost identical to that of the index it replicates.
The main equity indices
In Spain, the benchmark index of the stock market is the IBEX 35. But the vision of investors in the markets is increasingly global, thanks in part to the fact that, precisely, it is increasingly easier to invest in foreign markets.
There are indices and ways of investing that cover almost all the equities of the developed world in a single investment fund. The simplest and most direct way is by hiring a fund that replicates the evolution of the MSCI World Index, such as the Amundi Index Msci World Ae (Eur) Acc.
S & P500
The S & P500 index is one of the most followed in the world since it contains the main North American multinationals.
EURO STOXX 50
This index, prepared by Dow Jones, aims to capture the evolution of the main companies in the euro area.
Although the economy is still small from an international perspective, it is the first and most important reference for most Spanish investors.
What background do I choose?
We have at our disposal a multitude of indices and funds that replicate the most outstanding indices internationally, in order to be able to implement a passive, low-cost, diversified and global investment strategy. The finder Self Bank funds listed all kinds of backgrounds and gives the option to filter out those that best fit with our investment strategy.
It is possible to select assets such as these funds, or ETFs that allow us to participate in the creation of wealth in the global economy and its evolution, without the need to contract a multitude of different products. Passive investment strategies are getting easier and easier for everyone.
We remind you that investing in funds implies assuming a certain level of risk, which will depend on the fund you want to hire. Not all investment funds are the same and have different levels of risk depending on different factors. On our website it is possible to consult, both in the search engine and before contracting any fund, the FID (Fundamental Investor Data), the Semiannual Report and the corresponding full prospectus, to know the characteristics, costs and risks of each fund.
Self Bank has obtained the data contained in this communication through other sources of information that it considers reliable but is not responsible for the complete accuracy of the same. These data are for informational purposes only and should not be construed as a recommendation to buy or sell.
Self Bank is not responsible for: any loss derived from the direct or indirect use of the information contained in this communication, nor; of the use made of said information. The decisions that each investor makes, both investment and delegation level and advice, are their responsibility.
Self Bank is not responsible for the tax treatment of investment products. Before making any contract, it is advisable to obtain legal, regulatory and fiscal information about the consequences of an investment.