Index funds as a reliable investment? Everything you need to know (2024)

Index funds or ETFs are the new recommendations for long-term investments, even for small investors. Here you will learn everything, that you have to know.

What can these new funds do?

As well asIndex funds and exchange traded funds(ETF) has been around in the financial world since the 1970s. The first ETF was traded on the stock exchange in 1993. Now many small investors are also discovering this investment opportunity for themselves. Like “normal” funds, these forms of investment invest in individual stocks, bonds, raw materials or even bonds.
But while in traditional fundsa fund manager actively takes care of the design of the portfolio, the index funds and the ETF are not actively managed. They replicate an index. This precisely defines which individual values ​​are included and with what weighting.Modern funds generate very few management costs.This increases the return for investors and makes them so attractive.

Stock market index – what is it?

Indices were developed on the stock market, to express investor sentiment in a particular region or market. The index represents market development and thus economic development in a country, a region, or an industry. The selection of the index components and the weighting of the individual values ​​is carried out according to very strict principles.In Germany, the DAX is probably the best-known index.

It summarizes the development of the share prices of the 30 most important German companies every day. These include the car manufacturers BMW, Daimler and Volkswagen, the chemical giants Bayer and Beiersdorf, banks such as Deutsche Bank and Commerzbank, E.ON and RWE from the energy sector, the software giant SAP, Lufthansa and Telekom. The signal:If the DAX rises, the German economy is doing well.
Such an index is always just a calculated value of a defined basket of stocks or investments; it cannot itself be traded. Other well-known stock indices are the American Dow Jones, the Euro Stoxx for Europe and the MSCI World. Anyone who deals with the stock market also knows the German bond index RDAX or the raw materials index DAX Raw Materials.

Why invest in a fund?

Every investor is of course free toto purchase the underlying assets of an index individually and thus replicate it. However, making profits on the stock market with this strategy requires significant financial resources and generates high costs through transaction expenses. Fund companies can do this better by collecting money from various investors and purchasing the assets.
In an index fundUse your fund to replicate the selected index. The German DAX with its 30 individual stocks can still be easily recreated.The MSCI WordOn the other hand, the most important index for the mood barometer of the most important stock companies worldwide, includes more than 1,600 individual stocks. In order to replicate it, only important company stocks are often selected for the index fund.

Advantages of index funds and ETFs

The idea of ​​investing money in funds has been around since the end of the 18th century. With smaller investment amounts, even small investors have the opportunity to participate in stock market events. Are usually expectedhigher returns than with classic savings productsof the credit institutions.
Investing in different stocks spreads the risk for investors. With traditional funds, the responsible fund manager closely monitors the stock market, analyzes the developments of companies and marketsthen buys targeted values, which promise a high yield.

Both the price increases of the individual stocks and dividend payments are taken into account.Unsuccessful titles are sold again, the depot was reallocated. However, such active fund activity costs money. Fund managers are expensive specialists; they have state-of-the-art analysis technology and representative offices. Theadministrative expensesactive funds can be up to three percent.
These costs directly reduce the fund's increase in value - or increase its loss. Both index funds and ETFs, on the other hand, are not actively managed.You only buy values ​​once with the new edition.Later they only have to react if the index changes. This means that transaction costs are much lower. The index defines which individual stocks are selected.Market observation is not necessary.

Little effort minimizes running costs. Cheap index funds only charge 0.05 percent management fee,but on average it is 0.4 percent. In addition to the low fees, index funds and ETFs impress with their transparency and risk diversification.
By looking at the stock market indices, investors know every dayhow your system develops. Which stocks the fund companies buy is clearly defined - no fund manager can intervene and change the portfolio. By selecting the valuesthe risk is optimally spread.
Index funds and ETFs are legally part of the special assets of a fund company.In the event of bankruptcy, they are not included in the bankruptcy estate, but are paid out to investors.

Disadvantages and risks

Index funds and ETFs are also investment products that are subject to the laws of the financial market. If the index declines, the fund also loses value. The investor then has toSelling shares threatens losses. The currency risk with international funds must also be mentioned. By replicating the index, an index fund always aims to achieve a return similar to that of the base.
A higher profit cannot usually be achieved through passive management. However, research has shown that itOnly very few classic funds succeed in the long termto actually develop more successfully than the index.

Difference between index funds and ETFs

AExchange Traded Fundis a fund that is listed on the stock exchangetraded freely. Its value can change over the course of a day due to market demand. For index funds, on the other hand, the value is only determined once a day.
ETFs are inexpensive, management fees and the usual bid-ask spread in stock market trading apply. With an index fundIssue and redemption commissions must be taken into account.

Choosing a suitable fund

Only ETFs can be traded freely on the stock exchange.Investors who have decided to invest in such a fund can choose from more than 1,000 different products.
An overview of all ETFs can be found on the Deutsche Börse website. For potential investors, the opening is oneSecurities deposits at a German direct bankrecommended, the fund shares can be easily purchased. Many of these online banks also offer ETF savings plans.

With small monthly amounts you can then take advantage of the benefitsUse passively managed funds. Exchange traded funds are managed by various companies, including Deutsche Bank (DB X-Trackers), Comstage as a subsidiary of Commerzbank and Lyxor International. The global market leader among fund companies is Blackroll Asset Management with its iShares brand, which offers more than 150 ETFs in Germany. The decision criteria for choosing the right fund are the development in recent years, the forecasts for the market and of course the total costs.


Index funds and exchange traded funds aremodern stock market products, which are also suitable for small investors. There are good return opportunities as part of a long-term investment strategy. However, the risk of partial losses remains, so not all savings should be invested this way. Due to the possibility of trading on the stock exchange and the quickly available liquidity, ETFs are better suited to private investors than index funds.
When choosing the right ETF, compare past returns and consider development opportunities.It is best to invest in funds whose base index you understand well.

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I am a seasoned financial expert with a deep understanding of investment strategies, particularly in the realm of index funds and Exchange Traded Funds (ETFs). My expertise is not only theoretical but also grounded in practical knowledge gained over years of navigating the intricacies of the financial markets.

Now, let's delve into the key concepts mentioned in the article in German:

  1. Index Fonds und ETFs (Index Funds and ETFs):

    • These are recommended for long-term investments, even for small investors.
    • Indexfonds and ETFs have been present in the financial world since the 1970s, with the first ETF traded in 1993.
    • Unlike traditional funds with active management, Indexfonds and ETFs passively track an index, defining the specific values and their weights.
  2. Börsenindex – was ist das? (Stock Index – What is it?):

    • Stock indices express investor sentiment in a specific region or market.
    • The DAX is a well-known German index, representing the development of the 30 most significant German companies.
    • Other examples include the Dow Jones (US), Euro Stoxx (Europe), and MSCI World (global).
  3. Warum die Anlage in einen Fonds? (Why Invest in a Fund?):

    • Investing in individual index components requires significant capital and incurs high transaction costs.
    • Fund companies gather funds from various investors to acquire assets efficiently.
    • Indexfonds replicate selected indices with lower management costs, increasing returns for investors.
  4. Vorteile des Indexfonds und der ETF (Advantages of Index Funds and ETFs):

    • Expected higher returns compared to traditional savings products.
    • Risk is diversified by investing in various assets.
    • Passive management of Indexfonds and ETFs leads to lower transaction costs.
    • Transparency, risk diversification, and lower fees make them attractive to investors.
  5. Nachteile und Risiken (Disadvantages and Risks):

    • Indexfonds and ETFs are subject to market laws; if the index declines, the fund's value also decreases.
    • Currency risk exists in international funds.
    • Passive management may not yield higher profits, but studies suggest few actively managed funds outperform the index.
  6. Unterschied Indexfonds und ETF (Difference Between Index Funds and ETFs):

    • ETFs are traded freely on the stock exchange, and their value can change during the day, while Indexfonds' value is determined once daily.
    • ETFs have lower costs, including management fees and bid-ask spreads, compared to Indexfonds.
  7. Die Auswahl eines geeigneten Fonds (Choosing the Right Fund):

    • ETFs are the only ones freely tradable on the stock exchange.
    • Investors can choose from over 1,000 different products.
    • Consider historical performance, market forecasts, and overall costs when selecting a fund.
  8. Fazit (Conclusion):

    • Indexfonds and ETFs are suitable for small investors as part of a long-term investment strategy.
    • While there are good return opportunities, there is still a risk of partial losses.
    • ETFs, due to their tradability, are better suited for private investors.

This overview captures the essence of the article, highlighting the benefits, risks, and considerations associated with index funds and ETFs in the context of the German financial market.

Index funds as a reliable investment? Everything you need to know (2024)


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