Very quick one guys: do price-weighted/value-weighted indexes like DJIA/S&P500 pay out dividends on the underlying if one of shares included in the index pays out some sort of dividend? If not, does this constitute a disadv of investing in an index vs. manually investing in all 500 yourself? On the flipside, do investors in market indexes benefit from not having to pay for the saved transaction costs, or do the index providers manage to claw this back via some sort of overall premium?
How were you planning on investing in the index?
by investing in an index, do you mean an index mutual fund? if so, the investor gets dividends if he/she invests in an index mutual fund. (something like the S&P500 index, Sm Cap Index, etc.) you also get dividends if you invest in an actively managed mutual fund. i don’t think it makes much sense to buy the whole index “manually”. if investors buy the index fund from a no-load mutual fund shop, then yes they benefit from saved trans costs. you save in trans costs, but have do have to pay a % your assets per the fund’s expense ratio.
I would buy an index (say FTSE 100 index) at a given level (currently 6262) from someone who’s willing to sell it. Would they pay any realised dividends from the underlying stock to me then?
yep xavier, that’s what was meant. Cheers mate btw, what does “no-load” mean?
hakuna you can not invest in an index… an index is there to track the market… or track something- depending on the index you can replicate the index yourself case that in not recommendable or you can invest in a type of investment that replicates it that could be a mutual fund or an etf but yes if you take an index fund then they would pay dividends because if they wouldn’t the fund wouldn’t track the market accurately anymore. the fund receives dividends from underlying companies and pass them to you no load reffers to comissions paid
You can invest in an index by: a) Buying all the stocks in an index b) Buying an ETF c) Buying an index mutual fund d) Doing an equity swap e) Taking a long position in a futures contract (or a forward) f) Buying and selling index options g) Buying and selling futures options and probably other ways but you can’t just buy the index. Each of these is somewhat different n liquidity, marked-to-market, counterparty risk, taxation, transaction costs, convenience, capital required, and other ways.