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Can an Index Fund Investor Lose Everything?


There are few actualities in the financial world, but we can say that there is almost zero chance that any sign fund could ever lose all of its value.

There are a few reasons for this. Foremost of all, virtually all index funds operate with a very high position of diversification. Most index funds attempt to mirror some large-hearted basket or index of stocks, such as the S&P 500, by simply buying and preach on identical weights of each stock as the index itself. Thus, because an first finger fund’s holdings are almost always extremely well diversified, it is effectively impossible that all of these holdings’ market prices would give up to zero, destroying the value of the entire index. (See also: Introduction To Diversification and The Matter of Diversification.)

Think about it this way: If you randomly pick 100 followings, the odds that a single company of the 100 will go bankrupt authority be quite high. However, the odds that each and every one of the 100 gatherings will go bankrupt and leave shareholders with zero equity is essentially nil. Accordingly, an investment in a typical index fund has an extremely low chance of resulting in anything fusty to a 100% loss.

Banking on Book Value

Furthermore, the overall trite market, which most index funds tend to represent with their holdings (or at no a portion or particular sector of the overall market), is almost certain to be evoking tangible value over the long term. Because of this, the add up book value of all the underlying stocks in an index is expected to go up over the yearn term. This ensures that any well-diversified index fund ordain not significantly decline in value over the long term.

Index loots tend to be attractive investments for a well balanced portfolio. In addition to diversification and skirt exposure, these funds have low expense ratios, making them low-cost to own compared to other types of investments. The wide variety of index reserves means that you can dip your toe into a number of different industries, sectors and precursor classes without doing the legwork of due diligence on individual stocks. 

For newcomer investors, long-term investors, and those who don’t want to spend too much everything managing the portfolio, index funds offer a relatively low-risk way to induct and gain exposure to a wide range of equities. (See also: Index Inaugurating and Being Lazy With A Couch Potato Portfolio.)

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