Global index funds have revolutionized investing. Prior to their introduction into the personal finance marketplace, investors had few options to get a broad exposure to the various markets. They could simply buy a large amount of stocks. However, this would require a significant amount of investment funds and would rack up large trading fees. This was simply not a realistic choice for most everyday investors.They could buy a mutual fund, but it would often have high upfront and ongoing expense fees. It would also probably have some set strategic (value, growth, etc.) that the investor might not necessarily agree with. Stock index funds allowed investors to get the diversification they needed but without the cost. Global ones offer international stocks, including countries such as Canada. Canada is interesting because of its natural resources, and an index based-of it will have large investment returns if there is a rise in commodity prices.

These funds have clearly have satisfied a need for the everyday investor because the index fund industry has simply boomed. Market index funds differ significantly from each other. Some stock index funds are designed to track a specific index, like the 500 (which tracks large capitalization stocks), Russell (small companies) or MSCI (international). Others replicate an industry, such as pharmaceuticals or technology. Bond index funds are the same with fixed income investments. Some investors have taken advantage of this and have built their on macro “hedge fund” with the various indices available. But index funds also differ in not only their fees and type but how accurately they track their target. Some are leveraged, meaning they borrow money to amplify their bets. This would increase the investment gains when there is a positive return but also the losses when there is a negative return. The annual expense fees would also be higher because of the interest rate costs. A sophisticated investor needs to know what he is getting himself into as finance firms are infamous for bilking their customers. Proper online research is needed to ensure you are buying into what you desire and that they meet your risk and return profile. Be sure to fully investigate any index mutual fund before purchasing. Read online reviews and study all the major performance metrics.

What is good about index mutual funds is their low fees. The mutual fund industry has become notorious recently for overcharging the small investor with “front-end load” (upfront fees) and high expense ratios. Overtime, these fees build up due to the effects of the phenomenon known as compound interest. Index funds do not take an “active management” role. There are no analysts or portfolio managers constantly rejiggering the portfolio. Instead the trading is done by a computer. This means lower costs for the investor. This is an interesting strategy because long term, few actively managed mutual funds outperform the market. All this talk of financial wizards is often more fiction than fast. This is why market index funds are so popular today.

The personal investor today is swamped with so many investing options. Many of these are high fee and benefit the asset management company more than their customer. Global index funds offer a compelling investment choice and should be seriously considered by every investor.