Simple is an endless wisdom. Newton once said: "Truth is always simple in form, not complex and vague." Einstein also agrees with this principle: "Beauty is ultimately simplicity."
investment also contains the beauty of simplicity, and index funds are a typical example. John Berger, the father of index funds, wrote in "Investing Stable Earning": An index fund that tracks the S&P 500 index can create performance equivalent to stock market performance - this is not a magic trick, but just a fairly concise mathematical rule. The simplicity of the
index fund lies in its rules. The core of an index fund is an index. The "index" sounds profound, but in fact it is a mathematical rule, namely the weighted average. We often come into contact with similar calculation rules in our daily lives, such as the average grade of a class and the average age of a city. Indexes are used in the stock market and can reflect the average level of the market. The arithmetic rules based on the
index fund also directly reach the mechanism of the financial market. All investors constitute the market as a whole, so the returns of all investors are the overall returns of the market. Some people surpass the average returns of the market, and some people are below the average returns of the market. Especially for many ordinary investors, it is actually very difficult to surpass the average market return in the long run. Index funds provide an easy way to help investors obtain market average returns. The simplicity of the index fund lies in its philosophy. John Berger wrote: The whole truth of successful investment is just common sense. One of the common sense is that in investment, the success of earning capital returns comes from having a tangible company and enjoying the benefits of the long-term development of the company. This is the investment principle that countless investment masters have repeated thousands of times. It sounds simple, but it is never easy to turn it into reality.
Throughout history, enterprises come and go, with both ups and downs. In today's era, there has never been a shortage of "rises" in the market, but there are also "yellow flowers to tomorrow". For most investors, even if we have mastered professional knowledge and systematic methods, it is difficult to ensure that we can choose the "ever-winning general" in the market.
However, index funds can help us solve this problem. The specific index tracked by the index fund will dynamically adjust the samples and weights according to the compilation rules to maintain the representativeness of the index, and in this process, the survival of the fittest will naturally be achieved in stocks. Moreover, compared with individual stock investment, buying index funds is equivalent to buying a "basket of" different stocks, which diversifies the risks of individual stock investment. Index funds help us obtain average market returns in a relatively worry-free way. It is so concise and clear that this is also the beauty of the index fund philosophy.
The market is changing rapidly, and prices are rising and falling, but simple rules and common sense cannot be defeated. Only by turning the most complex into the simplest is it considered clever.
E Fund Index Pass wishes you good night.
Planning: Ding Jianming Hou Zhihong
Copywriting: Zhang Yixue Yang Wanyu
Anchor: Liu Yingjie
Editor: Zhang Nan Yu Hongbo
