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How index funds have revolutionized investing
Watch this video of Martin Small, head of BlackRock U.S. Wealth Advisory, “bridging” the connection between electric guitars and index investing as revolutionary vehicles of change.
What to know about index funds
Round out your knowledge of indexing, ETFs and index mutual funds.
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Institutional investors were the first adopters of index funds, more than four decades ago. Individuals quickly followed suit, thanks to the funds’ low cost, diversification and simplicity.
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For example, indexes that track U.S. dividend-paying companies can have different rules on stock selection, leading to vastly different results.
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Technology has made it possible to index strategies that were once only the province of active managers, such as smart beta ETFs that isolate factors like value, growth and low volatility.
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While the annual expense ratio matters, you should make choices based on what’s important to you, be it tax efficiency, tracking error or types of companies in the index.
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There’s a lot of work that gets done behind the scenes by skilled portfolio managers to help their funds deliver what they say “on the label.”
Index funds are still a small portion of stock and bond markets
Index funds have plenty of room to grow. They represent just 10% of global stocks and bonds and about a third of managed assets overall.
Room to grow
Sources: World Federation of Exchange Database (WFED data as of Dec 2018), BIS (data as of Q2 2018), HFR, Cerulli, Simfund (data as of Dec 2018), iShares GBI (data as of Dec 2018), Global Heat Map, McKinsey Cube (data as of Dec. 2017).
How to invest in index funds
The two most common types of index funds are exchange traded funds (ETFs) and index mutual funds. While they’re similar in many ways, there are a few key differences to consider.
| ETFs | Index mutual funds | |
|---|---|---|
| Portfolio construction | Professionally managed pool of securities that seeks to track a rules-based index. | Professionally managed pool of securities that seeks to track a rules-based index. |
| Buying and selling | On an exchange, like a stock | Directly with the fund provider |
| Share pricing | Market price set throughout the day, while exchange is open | Net asset value (NAV) set once a day, after market close |
For more information on the differences between ETFs and mutual funds, click here.
INDEX ETFs AND MUTUAL FUNDS TO CONSIDER
1 BlackRock as of 12/31/19. Based on $7.43 trillion assets under management globally.
Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses, which may be obtained by visiting the iShares Fund and BlackRock Fund prospectus pages. Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
Transactions in shares of ETFs may result in brokerage commissions and will generate tax consequences. All regulated investment companies are obliged to distribute portfolio gains to shareholders.
Diversification and asset allocation may not protect against market risk or loss of principal.
Shares of ETFs may be bought and sold throughout the day on the exchange through any brokerage account. Shares are not individually redeemable from an ETF, however, shares may be redeemed directly from an ETF by Authorized Participants, in very large creation/redemption units.
The Funds are distributed by BlackRock Investments, LLC (together with its affiliates, "BlackRock").
The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Barclays, Bloomberg, BlackRock Index Services, LLC, Cohen & Steers, European Public Real Estate Association (“EPRA® ”), FTSE International Limited (“FTSE”), ICE Data Indices, LLC, NSE Indices Ltd, JPMorgan, JPX Group, London Stock Exchange Group (“LSEG”), MSCI Inc., Markit Indices Limited, Morningstar, Inc., Nasdaq, Inc., National Association of Real Estate Investment Trusts (“NAREIT”), Nikkei, Inc., Russell or S&P Dow Jones Indices LLC. None of these companies make any representation regarding the advisability of investing in the Funds. With the exception of BlackRock Index Services, LLC, who is an affiliate, BlackRock Investments, LLC is not affiliated with the companies listed above.
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