Index funds

Index funds are growing in popularity. These are lowcost, well-diversified instruments.
These funds own baskets of stocks that represent an index. Index funds are passively managed funds.
They are sufficiently diversified and hence help in preservation of capital. This is true in that they diversify
against company-specific risks, but such a portfolio is not diversified against the systematic risks or
market risks. Hence, they carry the risks that affect the marketsstocks as a whole. Index funds can be a
valuable tool to individual investors in constructing a fully-diversified portfolio. They are traded daily like
stocks and can be purchased through stock markets. Index funds also avoid the risks of active
management. There is no need to monitor and evaluate them regularly like funds that are actively
managed. Hence, index funds offer risk-averse investors the opportunity to build a high quality.
A Dividend yield
Stocks that deliver a high dividend yield give better returns than most other investments during bear
markets. High dividend stocks are less volatile as there are buyers for these stocks at every fall. While
choosing a dividend yield, it is imperative to invest in stocks that have a long track record of dividends.
Usually, the managements of such companies don't like to deviate from their regular dividend policy and
hence may continue to give dividends even in a downturn. Regular dividends increase the returns from
the portfolio as the total returns from a stock are calculated as a sum total of its share value appreciation
and its dividend yield. Taking an example, if a stock gains 20 percent in value, and its dividend yield is 10
percent, the total return to the investor is 30 percent. On the other hand, if the stock loses value, the
investor will lose money only if it falls more than 10 percent. High dividend-yielding stocks can be a great
place to invest in a downturn.