What is a stock index

What is a stock index?

An index is needed to track the state of the entire market as a whole. For example, the MICEX index (https://clck.ru/MLoDW) includes stocks of all the largest companies in the Russian Federation in various proportions (the larger the company, the more weight it has).

Is it possible to invest in the index? Yes, and there are 2 options: 1 - independently repeat the structure of the index on your brokerage account, exactly repeating the content of each company in fractions of a percent (a capital of at least several million RUB will be required), as well as do rebalancing and regularly monitor changes in the composition of the index.

Option 2 - buy stocks of a fund that repeats the structure of the index. The MICEX index is repeated by the SBMX funds (https://www.sberbank-am.ru/individuals/etf/etf-moex/), FXRL (https://finex-etf.ru/products/finex-russian-rts-equity-ucits-etf-usd-/), RUSE (https://place.moex.com/products/etfs/RUSE). Each fund has its own management features and charges management fees.

Does it make sense to invest in the MICEX index? Yes, if in general you believe in the prospects for long-term growth of the Russian market. It’s very simple, just, for example, open a brokerage account and buy fund stocks for the same amount every month. Thus, there is no need to analyze the state of individual companies, as well as the choice of entry points, since in the long term you can in any case count on 15-20% (in the optimistic case) of the average annual return in RUB.

Is it more profitable to invest on your own? Yes, if you are ready to independently understand the reporting and analysis of individual companies and spend your own time on it. However, according to statistics, about 80% of professional fund managers (managed by professional economists and analysts) underperform the conventional index over the long term. These are professionals, but what can we say about amateurs?

On the graph we see the dynamics of the MICEX (MCFTRR, total return index) from 03/08/10-03/08/20, during this period the index grew by 196%, thus investing 1 million. RUB 03/08/10 into this simple instrument, today you would have 2,965,000 RUB (fund commissions of 1-2% per annum are not taken into account in the calculation).