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2 Best Index Funds to Invest in on Wall Street Optimism

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Trade tensions have finally begun to dissipate as the world’s two largest economies edge closer to a trade deal. President Donald Trump and his Chinese counterpart Xi Jinping’s meet scheduled in March is also boosting investor optimism.

In such a scenario where markets are highly anticipated to witness a big rally and stocks could move higher on the prospect of a trade agreement, index funds could be your final stop for an ideal investment.

What is an Index Fund?

An index fund is a type of mutual fund that is designed to replicate a specific market index. The portfolio is constructed in a manner that the fund may track or match the components of the index. The fund aims to imitate the performance of the index through its investment strategy.

Since an index fund typically owns all the securities in a given index, maintaining the fund requires lesser effort. This makes these funds have lower fees than those that are actively managed.

Investing in an index fund can be deemed as a type of passive investment, which ensures the fund outperforms the majority of actively managed mutual funds. The fund’s investment strategy can be termed passive because the fund owns a fixed portion of all the equities that comprise a given index in a bid to imitate its performance.

Why Invest in Index Funds Now?

It is imperative to invest in index funds now on the basis of a few developments on the geopolitical front that could boost the U.S. stock market in the days to come.

The ongoing trade dispute between the United States and China has been one of the major market movers since it commenced in July. The trade talks appear to bear fruits lately as the United States postponed the implementation of an array of additional Chinese tariffs that were set to begin on March 1 and did not hint at a new deadline.

In addition, Trump’s tweet earlier this week confirmed that trade talks were going significantly well, given he is scheduled to meet Chinese President Jinping next month to “conclude an agreement”. Although disagreements still persist on the issue of intellectual property rights, China has already committed to purchase up to $1.2 trillion of American goods as part of the negotiations to end the dispute, a CNBC report cited.

Given that index funds typically replicate market indexes, investing in a few such funds that imitate the broader S&P 500 could be ideal at present. Although the index has inched up 0.4% since the commencement of U.S.-China trade war on Jul 6, it has gained 11.5% on a year-to-date basis, reflecting the period the two nations declared a truce to begin negotiations. The S&P 500 Index stands to gain significantly on the back of a trade deal in the near future, deeming index fund investments extremely lucrative.

2 Index Funds to Buy

We have selected a couple of index mutual funds you could consider adding to your portfolio. These funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5,000.

We expect these funds to outperform peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

State Street Equity 500 Index II (SSEYX - Free Report) aims to provide investment results that are consistent with the total returns of the S&P 500 Index. The fund intends to invest in all the stocks that comprise the S&P 500 Index in proportions that are on par with their weight in the index. The fund invests at least 80% or all of its assets stocks that are a part of the index.

This Sector – Index product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

SSEYX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.03%, which is below the category average of 0.95%. The fund has a three-year return of 14%.

Invesco Equally-Weighted S&P 500 A (VADAX - Free Report) seeks total return through capital growth and current income. The fund invests in a diversified portfolio that comprises common stocks represented on the S&P 500 Index. The fund aims to invest in each S&P 500 Index stock in almost equal proportions. The fund manager adjusts the investment securities every three months so as to maintain a like weighing of each stock of S&P 500 index.

This Sector – Index product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

VADAX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.53%, which is below the category average of 0.95%. The fund has three and five-year returns of 13% and 9.2%, respectively.

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