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Old 03-13-2011, 09:13 PM
idiotstockinvestor idiotstockinvestor is offline
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Default Investing in an Index, what does this mean and how do you do it?

I read some comments in various sites about people saying "I invest in an Index because the returns are stable when the market rises".

I also didn't realize what an Index was and how I could invest in it.

So what is an Index?

An Index actually doesn't exist, yes I said it doesn't exist. An Index is like a "virtual-stock" that appears as a single stock. Eg. the DOW and S&P Indexes simply take select companies stock/equities and represent them as if they were all one stock.

Indexes are useful because they're an easy way/benchmark to see what's happening in the markets and are indicators of if things are moving up or down.

So how can you invest in an Index?

I said it before, it doesn't exist, you can't directly invest in the S&P 500 for example. Well if you're rich I'm sure you could buy an equal weighted balance of all of those stocks but let's be realistic.

What you can do is get into Mutual Funds or ETFs that do just what I mentioned above, they basically buy the stocks of a certain Index so you get essentially the same effect (minus the typical management fees).

Some examples of ETFs (I don't like Mutual Funds):

HEW.TO mirrors the S&P/TSX 60 Index:
http://www.hapetfs.com/pub/en/etfs/?etf=HEW&r=o

ZCB.TO replicates the S&P GSCI Base Metals Index:
http://www.etfs.bmo.com/bmo-etfs/glance?fundId=83025

ZCN.TO replicates the DOW JONES Canada Titans 60 Index:
http://www.etfs.bmo.com/bmo-etfs/glance?fundId=72048
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