Investing in Index Funds is one of the most popular ways to make money in Australia.
Index funds make investing in stocks safer, by diversifying your portfolio.
What Is An Index Fund?
An index fund in simple term, is a pool of money, also sometimes referred to as a mutual fund, which is used to purchase stocks, bonds or securities at a lever directly equivalent to the level of success of the given entity within the index.
The index fund has data on potentially hundreds of companies and businesses, it monitors their performance – for example if a company like Google is shown as rising, a higher portion of the index fund will be put into that area of investment, conversely if Google or another company were to go down, a lower portion would be allocated to them.
An example of an index fund is the S&P (Standard & Poor’s) index fund – it works as described above by matching a benchmark for each indexed entity.
Why Should I Use An Index Fund?
There are many positives and some negatives when it comes to index funds.
A major advantage of index funds is the simplicity of not having to manually search for, compare and pick out the right places to invest – an index fund handles these things automatically making it ideal for newer traders who want to build a well rounded portfolio.
A reason you may be discouraged from using index is the potentially high price of the process, in a way you could think of it as being a compensation for the lowered risk, on the positive side there are a few places which are well known for being affordable and as a result have attracted a lot of people, for example the Vanguard Index Fund.
The diversification allows you to almost never lose money, by investing in “everything” accordingly with their success – it does stunt your earnings slightly.
Because of the relatively low turnover index funds are very tax efficient.
The fact an index fund doesn’t require an active manager drastically decreases the cost of taking part in them.
What Are The Risks / Down-Sides Of Using Index Funds?
There are a few risks when it comes to index funds – for one if there is some mistake in the software or hardware of the provider – your investments could be allocated to the wrong place – naturally the chance of such an event is slim, but it’s worth considering.
There is also less flexibility when it comes to drastic changes in the individual funds – you could miss out on some fast-paced investments or fail to dodge a large loss.
Lastly is the face that index fund system is designed for well rounded investments – in other words it’s common if not expected to miss out on the absolute top earnings – that is why index funds are safer to use overall, so you could count this negative as a plus when it comes to stability.
How Can I Buy Australian Index Funds?
When it comes to finding trust worthy places for your investments it is important to keep in mind a few key aspects,
- Popularity / Reputation
In my personal opinion the most important thing to check when considering a new platform for anything business related, a good reputation is worth more than a hundred promises from the company in question.
Naturally you and I are interested in turning a profit, so finding a place which will earn you little to nothing or maybe even cost you is obviously a bad idea, due to the nature of index funds there is no risk in having rates which are too low attracting too many amateurs.
A comparably small concern, it is important to see where the platform in question is located – naturally different laws could influence taxation or even the availability to invest in certain entities.
With all of the above-mentioned information in mind you will simply register and get investing! That said if you are still struggling to find a platform or maybe just wand another place to expand your investments I have two recommendations.
Firstly Etoro is a well known, worldwide investment, stock and commodity platform – I’m sure you’ve seen the advertisements on YouTube yourself, they are well known for their low rates and are often praised for being beginner friendly without holding back the pros.
Etoro is an international company – this allows it to be flexible when it comes to different laws – if nothing else this is also a testament to its influence around the world, needless to say for me, and hopefully for you – all three of those bullet-points can be checked off!
Easymarkets is another well known platform for investors, traders and even forex trading, although not as widely recognised as Etoro is, you can tell this place is less beginner-orientated, while still easy to understand to a newbie like myself.
After a solid twenty minutes of searching I struggled to find any legitimate complaints concerning Easymarkets, the rates seem reasonable and the platform is being praised for great design and making its functionality clear when it comes any service it provides.
How Can You Buy US Index Funds From Australia?
You can purchase US index funds from Australia through the Manu online, International trading and investment platforms – it’s important to keep in mind the different rates present in the US .
In other words the previously mentioned websites, Etoro, Easymarkets or Vanguard are all places you could use for this porpuce.
According to my research, Vanguard is the best place to buy international index funds – there are many things that make Vanguard an exceptional trading platform – for one it has low rates, a large library of possible investments.
Something to keep in mind is that is you wish to purchase US index funds through a US based broker – legally you are required to register with the IRS (internal revenue service) to my knowledge you can legally bypass this by purchasing the index funds from a non-US broker, however as with all things I recommend doing your own research if you are serious about this area of work.