Index funds
Index fund designed to track the performance of a particular index such as the S&P 500 is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE, NASDAQ and has low fees. Easier way to but it by owning S&P 500 index fund you own share of 500 large companies on America stock market.
- the Russell 2000 made up of small-cap company stocks
- the Wilshire 5000 Total Market Index that is the largest U.S. equities index
- the MSCI EAFE consisting of foreign stocks from Europe, Australasia, and the Far East
What different between mutual fund vs Index fund. Mutual funds tend to have higher fees than index funds. hedge funds take speculative positions in derivatives, and they short sell stocks. With increased leverage comes increased risk.
Actively managed investment fund is a fund in which a manager or a management team makes decisions about how to invest the fund’s money. A passively managed fund which is Index fund, by contrast, simply follows a market index. It does not have a management team making investment decisions. Index funds over time tend outperform actively managed investment which I have talk about. In the Famous book A Random Walk Down Wall Street by Burton Gordon Malkiel, a Princeton economist, the author that asset prices typically exhibit signs of random walk and that one cannot consistently outperform market averages. “A random walk refers to any process in which there is no observable pattern or trend; that is, where the movements of an object, or the values taken by a certain variable, are completely random”
As said, there are many different types of index funds but one of the funnies cases. Is the Socially Responsible Investing index fund Vs. vice index fund.
Socially Responsible Investing index fund is any investment strategy which seeks to consider both financial return and social/environmental good to bring about social change regarded as positive by proponents. Is use by people who want to be socially responsible, by charities, non-profit organizations and government funds. As need organisations need to be socially responsible because it would be quite a scandal if charity that was involved in help people in war torn countries was investing in weapon manufacturer companies.
Few years later someone came up idea for vice funds sometimes known as sin fund which are the complete opposite as they invest in things that are bad for society tobacco, gambling, defence/ weapon manufacturer companies, and alcohol industry
Vice fund since its start has pretty much always made more money than socially responsible fund.
Let’s take look on The Pax Balanced fund is the oldest operating SRI fund in the business start in 1971 and Vice Fund also known as Vitium Global Fund is the industry’s oldest sin fund. Let’s take look at annualized returns of these two funds
Fund Name 1 Year 3 Year 5 Year 10 Year Since Inception
Pax Balanced 8.71% 5.8% 6.9% 4.27% 16.43%
Vice Fund 15.87% 7.54% 11.76% 6.83% 19.91%
Who may be thinking why don’t companies just invest the vice fund if makes more money than Pax was about moral convictions and it also does job which is to beat inflation and let investor money grow albeit not as well Vice fund.
Look the vice fund makes money because people are always going to indulge in vices during Great Depression people use their disposable income for little luxuries such as going to Movies and getting sweets. Even during Great recession people still want their little luxuries for example instead of going to the pub they went to the off-licence and instead of going to restaurants people go take always. So, business will need to adapt for example Great Depression cinemas cut ticket prices in half or started giving patrons two features for the price of one ticket known as double features.
