You have two options when it comes to investing:
You could invest in an index fund. The main point of a portfolio is that most of the shares are held in the same order as they would be bought and sold on the exchange. This is good for short term investments, because it is much cheaper to manage than other investing strategies. But as you grow you must diversify more. For example a 5 year old investment portfolio of stocks with an average return of 10% a year could go from 1 to 10.
The only way to invest for long term gain is through a mutual fund or a stock exchange traded fund (ETF). A stock exchange traded fund is basically an index. It is much riskier to buy and hold, as the fund owner is not holding any of his or her own shares. But if the fund performs well, the owner gains a much bigger return on his or her investment than he or she would if they bought the same shares at the same price on the market. Of course if the fund outperforms the market, the investor does not lose money, but he or she can probably earn more because of its higher return on investment. ETFs (also known as exchange traded funds) do not trade on an exchange, but are spread out across a number of exchanges that are different from each other. It is therefore possible to get a good performance with these ETFs if you follow a strategy to buy at the right time. For example a fund holding a variety of different stocks at the right time could do well if the market were not too strong, but if the fund did poorly, it could not earn a decent return over a long period of time. To understand how they work, take a look at the picture below.
In the above picture the blue dots represent different types of shares (stocks, bonds, etc) and the grey circles represent the various trading platforms (which are often based on different market rules, such as a spread, spread margin, dividends etc). A blue dot in the first picture is an index, which is usually bought directly, and as you can see, the blue dot is spread like a normal index fund. The grey circle represents a stock exchange traded fund, which is much riskier than a regular index fund.
In the second picture you can see that the index is sold on a regular exchange (such as in the UK), and the stock exchange traded fund is bought directly from one exchange to the other (such as in the USA). You can also
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