How index trackers work – index funds explained

Index trackers – also known as index funds – are the investment vehicle of choice for passive investors. Why? Because index trackers provide a low-cost way to build a diversified portfolio that will outperform the average active investor. Index trackers come highly recommended by some of the biggest names in investing. Yale’s famed endowment fund manager, David Swenson, neatly summed up the advantages of trackers: “With all assets, I recommend that people invest in index funds because they’re transparent, understandable, and low cost.” Even Warren ‘Gazillionaire’ Buffett says index funds are the best investment vehicles for most people. Safety in numbers Like other funds, tracker funds enable lots of investors to club together to increase their buying power. They collectively buy shares or other assets across many more companies than any individual could. For example, index trackers make it possible to invest in all the world’s stock markets via just one global tracker fund. Trackers…