Here’s what a crypto Index Fund looks like: Your money 💰 ______________|______________ | | | Asset 1 Asset 2 Asset 3 Learn more below.
A crypto index fund simply takes the idea of a traditional index fund — an investment vehicle designed to track the performance of a designated market index — and replaces the underlying assets with crypto tokens instead of company shares.Understanding crypto index funds requires familiarity with market indexes. In short, a market index is a way of using data to track and measure the performance of a stock market, or a specified group of companies and their associated stocks.
A market index, meanwhile, is a way of using data to track and measure the performance of a stock market or section of the stock market. The S&P 500, Dow Jones Industrial Average, and FTSE 100 are all examples of market indexes. The FTSE 100 tracks the stock performance of the 100 largest companies by market capitalization on the London Stock Exchange.
As such, one of the main advantages of an index fund is that they’re thought to offer better long-term results compared to actively managed funds. For example, the average annualized return of the S&P 500 from 1957 through to the end of 2021 was 11.88%. The downside, however, is that there’s very little flexibility. An actively managed fund can drop poorly performing stocks and, with good management, outperform the wider market. If the index goes down, an index fund will also deliver a loss, whereas an actively managed fund can still deliver profits during a downturn.Now that you know what a traditional index fund is, it's very easy to understand what a crypto index fund is.
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