This guide breaks down two popular approaches - index and momentum investing - to help you make informed decisions that position you well within your financial goals and risk tolerance.
What is index investing?
The foundation of a diversified portfolio, index investing is a passive investment strategy that aims to clone the performance of a specific market index, such as the S&P 500, Nasdaq 100, or JSE Top 40 Index.
Instead of trying to outperform the market by selecting individual stocks, investors aim to match the market’s returns by holding a diversified portfolio that mirrors the chosen index.
Key characteristics:
1. Diversification: This strategy spreads investments across a range of companies, reducing risk and volatility. It provides exposure to various sectors and industries, making it a safer choice for risk-averse investors.
2. Low cost: Index and exchange-traded funds generally have lower expense ratios compared with actively managed funds.
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