When talking about the investment sector, one of the best known products that exist are the so-called indexed products. They are one of the best options for investors who have with less experience or learning in financial markets. They can be applied to both fixed income products, such as term bank deposits and variable income deposits, where investment funds are one of their greatest exponents. In both cases, they replicate the evolution of the financial assets to which each of these financial products are linked.
Its evolution is sensibly different to that generated from the most conventional investment products. In the sense that they more accurately reflect the evolution of financial markets. To the point that they become a real alternative to start investing, but without assuming more unnecessary risks in operations. They are especially indicated to make profitable savings in the long term and above the shorter periods. Therefore, its recipients are a more defensive or conservative investor profile
One of the advantages of so-called indexed products is that more and more investment models are being opened up. They are no longer limited to investment funds, as they were until a few years ago, but you can even subscribe them from the fixed-term bank deposits. Because what it is at the end of the day is to replicate a financial asset, whatever it may be. It is the true meaning of indexed products and what you can benefit from to start your investments from now on.
Indexed Products: Funds
They are in the Investment funds where the true philosophy of indexed products is more correctly materialized. Because in effect, they can be adapted to any kind of sector or index in international equities. Not in vain, you have the contribution that there are index funds on any index such as Ibex 35 or the S & P500, to cite just a few examples. With a very easy-to-understand mechanic based on whether the index rises, the fund increases in value proportionally. Not in an approximate way as it happens with other types of investment funds that are not indexed.
One of its advantages is that your operations can be transferred, both to the markets national as well as international, although they are the first ones the most likely to develop this financial product. More than anything for hiring it in management companies that are located in our national territory and prefer to prefer this geographic location. But of course there are no kind of restrictions or limitations to be able to choose an indexed investment product or fund. Only those made by the managers themselves.
They fail to beat the indices
Of course, if what you are looking for is a product to beat the indexes, this is not the alternative that you need at this precise moment. Because he never makes operations profitable in this way, nor does he its behavior is inferior to that marked by financial markets. In a way, it is how you invested your money in buying and selling stocks on the stock market. But instead of a single security, in a sector or index to more successfully diversify the capital invested. As you will see, there are some differences that make indexed products different in the investment sector.
Through this investment model it is much easier for you to adjust to the reality that is marking the financial markets day by day. Above other technical considerations and perhaps also from a fundamental point of view. This, in principle, neither benefits you nor harms you excessively. If not, on the contrary, conforms to an investment style that it is substantially different from the rest and that it did not exist until a few years ago. Well, you can hire them without any problem on your part.
Lower commissions
One of the most relevant characteristics of the so-called indexed products is that they present commissions and expenses in their management that are more affordable for all users. That is, it will cost you less money to make the investment from these special products that you have in front of you. And of course without having to pay very high commissions in funds with active management or other characteristics. Where it can frequently reach 2% on the invested capital. In index mutual funds, these fees rarely reach 0,80%. With which you can save a lot of money with your hiring.
With regard to investment funds of an indexed nature, you should know that they are the cheapest you can find in the market. To the point that it will be easier for you make it profitable ahead of time and once the commissions and expenses of these financial products have been discounted. Whatever the financial market you are targeting at the moment. Although logically the national markets are less expansive in regard to these disbursements. More adapted to the real needs of users.
ETF vs index funds
ETFs, being listed in organized markets, give the investor the option to choose the purchase and sale price, they allow you buy or sell at any moment of the day. With an operation very similar to that offered through index funds, but with the big difference that in the latter you can save a lot of money in commissions. From this point of view, it is more profitable to subscribe an index fund than a listed one. Although everything will depend on the expectations of each of the investors.
It cannot be forgotten, on the contrary, that index funds can be bought or sold once a day ignoring a priori the price trading. From this investment perspective, they are the most suitable exchange-traded funds or ETFs for your operations in the financial markets. In other words, there will be many levels of satisfaction in each of these two financial products and that they will be able to decide your choice from now on. With its advantages and disadvantages, as on the other hand it is logical to think when talking about products intended for investment that is what we are talking about at the moment.
Advantages of indexing
This class of financial products carries a series of benefits that you should know from the first moment. So that in this way, you can operate more easily with them and you can even get the most out of your operations. In any case, they bring you the following benefits that we expose you below.
- Conclusion cheaper than the other financial products and they will not require you to face high commissions, as on the other hand it happens with other investment models.
- Its monitoring is much easier since exactly replicate equity indices, with hardly any differences as is the case with more traditional investment funds. To the point that they will require less effort to verify their evolution.
- Conclusion very simple products that do not require special learning. They are adapted to all the profiles of small and medium investors. Without ever having any kind of problems to understand them correctly.
- They are more innovative in the sense that they have been made for a short time. On the other hand, they start from a management that is most innovative and that raises new perspectives on investment. The management companies have at the retail client's disposal an offer of index funds that invest in the Spanish, European and international stock markets.
Disadvantages of this product
The indexed ones, on the other hand, do not allow you to deviate from the evolution of the equity indices. It is very common that some investment funds can beat the index they are following or vice versa. In this sense, they are financial products a lot more unpredictable from all points of view. They can give you the odd surprise, both in one way and another. Something that does not happen with indexed products or funds. From this scenario, it is more difficult to obtain large revaluations and in a certain way even unexpected.
Through the years it was revealed that long-term there are very few investors or actively managed funds that are able to beat the indices, that is to say, in the long term it is very difficult to improve the profitability offered by the indices. What indexes offer you is above all more security to make investments since you know at all times what you are exposed to. Without any kind of deviations in the financial assets chosen by the investors.
Not surprisingly, this is the great bet that this model has made to make the savings profitable and above other technical considerations. Although at the end of the day you should be the one who has to face the decision of whether or not it is convenient for you to hire one of these financial products. So that your checking account balance improves year after year.