RetireJapan

SO i wondered how the funds which passively track, say the S&P 500, are able to help the average investor who drip feeds money in.While the common sense view for me, the average saver, is each monthly contribution is able to buy more for the same amount, I understand that, however how is the fund able to increase its profit, if it is only "tracking" the S&P 500. What did the FUND DO with the shares it previously bought ?Did they just hold them, or did they sell them?
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Active seems very easy to understand, but with the more passive funds I just wondered if anyone could say something on that and how the actual day to day running, the nuts and bolts, of the money controlled by the fund managers.

Passive funds are able to expand or contract by buying or selling the underlying stocks in the indexes that are tracked. In many cases, like the larger Vanguard index funds, the mutual fund is attached to an ETF where market participants actively create and redeem baskets of stocks which make up units of the index (which allows Vanguard to push off the tax consequences of trades to those market participants). That activity is able to account for the net of new funds coming in minus funds leaving from fund redemptions. Passive funds do not make more or less when markets rise or fall. Their managers are always making the small management fee which is based on the funds under management in the fund. The average investor is not "making more" when the index fund falls but they are getting that same basket of stocks at a lower price than when the index was higher.

In situations of extreme market turmoil that could theoretically breakdown for a small, specialized index fund built on illiquid stocks (e.g. stocks from countries which might stop trading or low market cap stocks) but that is not at all the case for the larger index funds which if anything move very little from the smaller market stocks within the index because the index is weighted for market cap.

Bubblegun wrote: ↑Mon Mar 09, 2020 3:19 am it just go me wondering how these funds are operating. Do they just take our money and buy stock in say APPLE,FACEBOOK, AMAZON and just wait, or are saying, sell because the prices are falling, or buy.

I won't pretend I have the answer. But this page kind of explains it for mutual funds, assuming that's your question:
https://mutualfunds.com/education/how-m ... -redeemed/

relevant quote (emphasis mine):

After the markets closes, a broker at the fund’s distributor will execute the sale of the fund at the day’s net asset value (NAV). The NAV is essentially the daily value of all the assets of the fund minus the fund’s liabilities. This number is then converted to a quoted per-share price.

Unlike an ETF—which is passive and generally tracks indexes—mutual funds are constantly buying, selling and exchanging their various holdings each day. Not to mention dealing with investors’ redemptions and additions. Given that they hold sometimes hundreds of individual securities, it can be a vastly complex undertaking to figure out an instant NAV throughout the day. Therefore, the end of the day NAV is used to calculate buys and sells of the fund’s shares.

When the end of the day hits and the NAV is calculated, investors have officially sold their shares and are distributed a check or direct deposit. Mutual funds generally keep a cash cushion to meet investor redemptions without being forced to sell stocks or bonds to pay for the outflows.

ETFs look a bit more complex. See https://www.investopedia.com/articles/m ... 062705.asp

Not going to dig it up, but I've read that some funds/ETFs use a replication strategy to match the specific index they use--some financial wizardry so that, say, a total stock market (or total world) fund doesn't actually have to buy/sell all those thousands of stocks.

Oil Crash + Corona virus = Bloodbath in the markets!

I doubt the Olympics will be cancelled, but if it is...I can't imagine how low the markets are heading....

OkLah! wrote: ↑Mon Mar 09, 2020 6:45 am Now since every single case is making the headlines in Bloomberg, and that each case is having the market correct by a minimum of 4%. I think we will soon see most indexes close to zero.

I wish I still had money on the side to invest

StockBeard wrote: ↑Mon Mar 09, 2020 7:03 am I wish I still had money on the side to invest

Really tempted to try to get one of those 0-interest loans if the stock markets go much lower

Wow, another huge chunk off. I had to do a double take when I logged into rakuten this evening.

I made a few staggered orders last week but I think I'll hold off a while before placing any more!

Yeah, strong yen and plunging stock markets is a heady combination.

Shame I don't have any cash available right now!

We don't have any stocks so no immediate losses for us

this slide was no real shock, it was going to happen (given what happened in China)

I've been sitting on lots of yen for quite while. So with fingers crossed I used just shy of a third of it to buy dollars yesterday--shinsei, got a rate of 102.66. Then later it strengthened into the 101 range (gulp!), but has now gone the other way (~103.7).

I'll probably hold the dollars, while vacillating between sending them off to "buy the dip", er, ..."dive", or just leave the them here and switch back to yen someday.