Short YouTube explainer by Ndubuisi 'Andy' Egwim giving a practical checklist for choosing an index fund: check total expense ratio (TR), confirm whether the fund is accumulating or distributing (reinvests dividends vs pays out), and ensure sufficient diversification across countries and sectors. Uses example tickers (VUAG, SPXL) and TR values to illustrate.
What index fund should you buy? What index fund should I buy? Irrespective of what you decide to choose, you still need to know some basic technicalities. One, if you're looking at two funds, you might be looking at a fund like Vuag, which is Vanguard S&P 500. And you're looking at another fund, let's say you're looking at SPXL, which is also like maybe State Street S&P 500 ETF. You're looking at both of them. You're wondering, what's the difference? There are a few things I check for. What is the total expense ratio? So you always see tr, that's, that will tell you how much of my funds are going into investing versus cost of managing the fund. A rule of thumb obviously makes sense that I prefer my TR to be lower than higher. So a lower TR I would rather prefer. So if I see SPXL and the TR is 0.03% and I see VUAG and TR is 0.07%, I'm already thinking, well, let me check out this SPXL. Of course, this is not financial advice. I'm not telling you to buy it, but that's basically where I'll start my research. Now the next thing to think about is are these funds, are you buying Apple for apple orange versus orange? So that you make sure you're comparing the same things. So the question is, is this fund, is it accumulating or distributive? So an accumulating fund is basically reinvesting your dividends, reinvesting the proceeds. So this is where compounding really comes into effect. It makes your compounding machine, which is your investment in the stock market to work more powerfully because the yields from investment are being reinvested automatically. And if you're in a growth phase or accumulative phase of your life or career, where you're still trying to build your wealth or build your financial independence, that could be option to think about. So the other option will be the distributive where they actually pay out the dividends and you can take the dividends and enjoy it or do whatever you want or reinvest it. Now, for most people, those dividends are not going to make a massive difference in their life right now, probably make a difference in their life later in the future. So they might decide, you know what, I want to reinvest automatically. So before you decide on the funds, check is it accumulative or distributive? These are two key things that you check before you take off an etf. So number one is actually the diversification, how diversified it is. Is it diversified across countries? Is it diversified across sectors? So you don't just want an index fund that is just in one country. I don't want an index fund that's just in one sector, let's say tech or finance. And is it diversified basically across these options to think about. Now, the second thing I'm looking at the cost of the fund, what's the total expense ratio? And number three, I want to see, is it accumulative or distributive? This is a point to start from because most people think, oh yeah, I know now that I should be investing. But you feel paralyzed. You know that you can set your index fund and automate it and then just set up a direct debit to invest every month, but when you log in, you are unsure what to do. Well, I hope that helps. And of course, if you've got any questions, drop it in the chat or check me out@moneywisedoctor.com or follow me on Instagram or wherever you see this video. Hope that helps. All the best. Bye. Bye.
