4 reasons that you should invest in Index ETFs.

As an investor, I have tried to invest stock, future, and warrant. But now, I found the most suitable, and I am currently only investing in, that is, Index EFTs.

Investing in index ETFs is the best thing I am doing, and you should do so.

Here, I will elaborate why you should invest in Index ETFs, what are disadvantages for this, and share which EFTs that I’m investing now.

Let’s get stared!

4 reasons that you should invest in Index ETFs

Here are the reasons for investing in Index ETFs:

It can live longer than individual stock

Believe it or not, index ETFs can survive longer than individual stock.

For US stock indexes, DowJones, S&P 500, and Nasdaq, they have been existing for over 50 years, longer than many giant companies, like Apple, Amazon, Google, Ford, etc. 

You may know a lot of companies are closed or went bankrupt, but you never heard news of indexes disappearing.

The point is that companies may fall due to bad performance, or insufficient funds for operation, but indexes don’t (unless the country is extinguished).

According to statistics from Fortune magazine, the average lifespan of the top 500 companies is 40 to 42 years, less than that in indexes. Unless it is a family enterprise, no matter how large a business is, it is rare that a company can survive for more than 50 years.

In contrast, the indexes can exist for a very long time, so as in index ETFs, even there are many rounds for company change.

You can earn a great annual return with the easiest invest way

You don’t need to do any extra process, just to invest and hold it tight, you will get a great return from Index ETFs.

Take VOO and QQQ for example, per latest statics, the annual returns are as below (summarize from VOO and QQQ website, as of Jan. 31, 2024) :

YTD1-year3-year5-year10-yearSince inception
VOO1.60%20.77%10.97%14.24%12.57%13.91%
QQQ1.82%42.50%10.55%20.74%18.10%9.49%

If you hold them over 10 years, you can earn over or close to 10% each year. 

Even experienced fund managers or dealers, seldom of them can archive such returns constantly.

Moreover, you don’t have to do tremendous research and analysis, just buy and hold them, you can enjoy such great returns, and win over 80% investors in the market.

From the long-term trend perspective, their price are still growing, this makes you more easy to hold them.

Index ETFs VOO long-term trend
Index ETFs QQQ long-term trend

So easy, isn’t it?

Many composites in ETFs, make your risk to more lower level

An ETF has many composites, meaning the performance and risk all depend on how these composites perform.

Take Apple (AAPL: US) and VOO as examples.

If you invest in Apple, the performance and risk will all be bundled on how Apple performs in finance, like sales, earrings, and its forecast for development.

In contrast, if you invest in VOO, its performance and risk are not only decided by Apple, but also other 499 composites, like Microsoft, Google, Nvidia, Amazon…etc.

So, even if Apple has price down, as Microsoft or Nvidia have price up, the negative effect can offset, and keep VOO’s performance.

Lower cost and management fee, keep your earnings more

Lowest cost and management fee is the biggest merit for investing index ETFs.

Think about this, if you earn $10,000 from your portfolio, and the fund company says they will take $100 from you profit. 

You may think just $100, it’s not a big deal.

But, as you invest longer, the annual charging can accumulate to a big number, it could be $2,000 or $ 3,000, and has an impact on your long-term portfolio . 

The lower fee from the fund company, the more we can save from our portfolio. That’s low-cost index ETFs are our top choice.

What are the disadvantages to investing in Index ETFs?

Even investing in index ETFs has many merits, there are still some disadvantages for doing this:

Return can be lower than other invest tools

VOO and QQQ, for example, can provide around 10% annual return, that’s good, right?

But for some investors chasing more, these returns apparently cannot satisfy their desire, and turn to investing in tools with higher profit, like individual stock, or derivatives.

You can’t deny that they may indeed provide much higher return, like 30% or 40%, but they also have higher risk, and make you lose more.

It could be boring

Investing in index ETFs is the simplest and easiest way, and it’s also the most boring way.

All you need to do is just buy and hold, no extra research and judging, hence freeing you a lot of time, making you not know what to do.

If you are keen on trading, then it may not be suitable for you to invest in index ETFs.

Which index ETFs do I choose?

It has so many benefits on investing index ETFs, what are the ETFs I am investing in?

I choose VOO and QQQ as my long-term investment, and will not sell them before my retirement.

The main reason is that, S&P 500 is the most representative index for the US stock market. It comprises over 500 stocks, including many “giants” like Apple, Microsoft, Amazon, and Google. They can provide an adequate yearly return, and have low-level risk. If you want something that is worth investing forever, S&P 500 definitely is the best one.

There is another most popular ETF, SPY. However, its cost rate 0.09% is higher than VOO, which just charges 0.03%. With this point, VOO becomes my best choice.

As for QQQ, the reason is simple. It can match my preference to the tech stocks, and it can provide me more return in my portfolio, even if it’s more fluctuating than VOO, and charges more expensive than VOO, it’s still my choice to invest in it.

Conclusion

There are many good reasons for you to invest in index ETFs, like VOO and QQQ. Not only can you earn around 10% annually without taking lots of effort, but also bear the lower risk than stocks, lowest charges, and you can invest it forever.

Of course such an investment is too simple, you may feel bored if you get used to trading everyday. But due to its simplicity, we can go further on our investment road.

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