Index versus momentum

COMPREHENSIVE BREAKDOWN OF INVESTMENTS TO HELP YOU MAKE WISE DECISIONS

- Maboko Seabi

It’s important for investors looking to simplify the complexities of the equity market to understand the types of investment strategies available.

This guide breaks down two popular approaches - index and momentum investing - to help you make informed decisions that position you well within your financial goals and risk tolerance.

What is index investing?

The foundation of a diversified portfolio, index investing is a passive investment strategy that aims to clone the performance of a specific market index, such as the S&P 500, Nasdaq 100, or JSE Top 40 Index.

Instead of trying to outperform the market by selecting individual stocks, investors aim to match the market’s returns by holding a diversified portfolio that mirrors the chosen index.

Key characteristics:

1. Diversification: This strategy spreads investments across a range of companies, reducing risk and volatility. It provides exposure to various sectors and industries, making it a safer choice for risk-averse investors.

2. Low cost: Index and exchange-traded funds generally have lower expense ratios compared with actively managed funds.