What factors should I consider when evaluating index funds?
The idea of an index is that it is representative of the market (or a specific market segment) as a whole, so it will move as the market does. Thus, past performance is not really relevant, unless you want to bank on relative differences between different countries' economies. But that's not the point. By far the most important aspect when choosing index funds is the ongoing cost, usually expressed as Total Expense Ratio (TER), which tells you how much of your investment will be eaten up by trading fees and to pay the funds' operating costs (and profits). This is where index funds beat traditional actively managed funds - it should be below 0.5% The next question is how buying and selling the funds works and what costs it incurs. Do you have to open a dedicated account or can you use a brokerage account at your bank? Is there an account management fee? Do you have to buy the funds at a markup (can you get a discount on it)? Are there flat trading fees? Is there a minimum investment? What lot sizes are possible? Can you set up a monthly payment plan? Can you automatically reinvest dividends/coupons?  Then of course you have to decide which index, i.e. which market you want to buy into. My answer in the other question apparently didn't make it clear, but I was talking only about stock indices. You should generally stick to broad, established indices like the MSCI World, S&P 500, Euro Stoxx, or in Australia the All Ordinaries. Among those, it makes some sense to just choose your home country's main index, because that eliminates currency risk and is also often cheaper. Alternatively, you might want to use the opportunity to diversify internationally so that if your country's economy tanks, you won't lose your job and see your investment take a dive. Finally, you should of course choose a well-established, reputable issuer. But this isn't really a business for startups (neither shady nor disruptively consumer-friendly) anyway. Your link is pointing to managed funds where the fees are higher, you should look at their exchange traded funds; you will note that the management fees are much lower and better reflect the index fund strategy.
One thing to be aware of when choosing mutual funds and index ETFs is the total fees and costs. The TD Ameritrade site almost certainly had links that would let you see the total fees (as an annual percentage) for each of the funds. Within a category, the lowest fees percentage is best, since that is directly subtracted from your performance. As an aside, your allocation seems overly conservative to me for someone that is 25 years old. You will likely work for 40 or so years and the average stock market cycle is about 7 years. So you will likely see 5 or so complete cycles. Worrying about stability of principal too young will really cut into your returns. My daughter is your age and I have advised her to be 100% in equities and then to start dialing that back in about 25 years or so. Yes you should take in the expenses being incurred by the mutual fund. This  lists down the fees charged by the mutual fund and where expenses can be found in the annual statement of the fund. To calculate fees and expenses. As you might expect, fees and expenses vary from fund to fund. A fund with high costs must perform better than a low-cost fund to generate the same returns for you. Even small differences in fees can translate into large differences in returns over time. You don't pay expenses, so the money is taken from the assets of the fund. So you pay it indirectly. If the expenses are huge, that may point to something i.e. fund managers are enjoying at your expense, money is being used somewhere else rather than being paid as dividends. If the expenses are used in the growth of the fund, that is a positive sign. Else you can expect the fund to be downgraded or upgraded by the credit rating agencies, depending on how the credit rating agencies see the expenses of the fund and other factors. Generally comparison should be done with funds invested in the same sectors, same distribution of assets so that you have a homogeneous comparison to make. Else it would be unwise to compare between a fund invested in oil companies and other in computers. Yes the economy is inter twined, but that is not how a comparison should be done. "There are a few reasons why an index mutual fund may be preferable to an ETF: I looked at the iShare S&P 500 ETF and it has an expense ratio of 0.07%.  The Vanguard Admiral S&P 500 index has an expense ratio of 0.05% and the Investor Shares have an expense ratio of 0.17%, do I don't necessarily agree with your statement ""admiral class Vanguard shares don't beat the iShares ETF""." Foreign stocks tend to be more volatile -- higher risk trades off against higher return potential, always. The better reason for having some money in that area is that, as with bonds, it moves out-of-sync with the US markets and once you pick your preferred distribution, maintaining that balance semi-automatically takes advantage of that to improve your return-vs-risk position. I have a few percent of my total investments in an international stock index fund, and a few percent in an international REIT, both being fairly low-fee. (Low fees mean more of the money reaches you, and seems to be one of the better reasons for preferring one fund over another following the same segment of the market.) They're there because the model my investment advisor uses -- and validated with monte-carlo simulation of my specific mix -- shows that keeping them in the mix at this low level is likely to result in a better long-term outcome than if i left them out. No guarantees, but probabilities lean toward this specfic mix doing what i need. I don't pretend to be able to justify that via theory or to explain why these specific ratios work... but I understand enough about the process to trust that they are on (perhaps of many) reasonable solutions to get the best odds given my specific risk tolerance, timeline, and distaste for actively managing my money more than a few times a year. If that. My main criterion for choosing a broker is the fee schedule. I care about investing in index funds and paying as little as possible in fees. In the US that brings everyone to Vanguard or Fidelity, and currently Vanguard edges Fidelity out on costs for the particular funds I am invested in. Index Funds & ETFs, if they are tracking the same index, will be the same in an ideal world. The difference would be because of the following factors: Expense ratio: i.e. the expense the funds charge. This varies and hence it would lead to a difference in performance. Tracking error: this means that there is a small percentage of error between the actual index composition and the fund composition. This is due to various reasons.  Effectively this would result in the difference between values. Demand / Supply: with ETFs, the fund is traded on stock exchanges like a stock. If the general feeling is that the index is rising, it could lead to an increase in the price of the ETF. Index funds on the other hand would remain the same for the day and are less liquid. This results in a price increase / decrease depending on the market. The above explains the reason for the difference.   Regarding which one to buy, one would need to consider other factors like: a) How easy is it to buy ETFs? Do you already hold Demat A/C & access to brokers to help you conduct the transaction or do you need to open an additional account at some cost. b) Normally funds do not need any account, but are you OK with less liquidity as it would take more time to redeem funds. I don't know what you mean by 'major'. Do you mean the fund company is a Fidelity or Vanguard, or that the fund is broad, as in an s&P fund?  The problem starts with a question of what your goals are. If you already know the recommended mix for your age/risk, as you stated, you should consider minimizing the expenses, and staying DIY. I am further along, and with 12 year's income saved, a 1% hit would be 12% of a year's pay, I'd be working 1-1/2 months to pay the planner?  In effect, you are betting that a planner will beat whatever metric you consider valid by at least that 1% fee, else you can just do it yourself and be that far ahead of the game.  I've accepted the fact that I won't beat the average (as measured by the S&P) over time, but I'll beat the average investor. By staying in low cost funds (my 401(k) S&P fund charges .05% annual expense) I'll be ahead of the investors paying planner fees, and mutual fund fees on top of that. You don't need to be a CFP to manage your money, but it would help you understand the absurdity of the system. "Ah ok, I can appreciate that. I'm fluent in English and Mr. Graham's command of English can be intimidating (even for me). The edition I have has commentary by Mr. Jason Zweig who effectively rewrites the chapters into simpler English and updates the data (some of the firms listed by Mr. Graham don't exist either due to bankruptcy or due to consolidation). But I digress.  Let's start with the topics you took; they're all very relevant, you'd be surprised, the firm I work for require marketing for certain functions. But not being good at Marketing doesn't block you from a career in Finance. Let's look at the other subjects.  You took high level Maths, as such I think a read through Harry Markowitz's ""Portfolio Selection"" would be beneficial, here's a link to the paper:  https://www.math.ust.hk/~maykwok/courses/ma362/07F/markowitz_JF.pdf  Investopedia also has a good summary:  http://www.investopedia.com/walkthrough/fund-guide/introduction/1/modern-portfolio-theory-mpt.aspx  This is Mr. Markowitz's seminal work; while it's logical to diversify your portfolio (remember the saying ""don't put all your eggs in one basket""), Mr. Markwotiz presented the relationship of return, risk and the effects of diversification via mathematical representation. The concepts presented in this paper are taught at every introductory Finance course at University. Again a run through the actual paper might be intimidating (Lord knows I never read the paper from start to finish, but rather read text books which explained the concepts instead), so if you can find another source which explains the concepts in a way you understand, go for it. I consider this paper to be a foundation for other papers.  Business economics is very important and while it may seem like it has a weak link to Finance at this stage; you have to grasp the concepts. Mr. Michael Porter's ""Five Forces"" is an excellent link between industry structure (introduced in Microeconomics) and profit potential (I work in Private Equity, and you'd be surprised how much I use this framework):  https://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy  There's another text I used in University which links the economic concept of utility and investment decision making; unfortunately I can't seem to remember the title. I'm asking my ex-classmates so if they respond I'll directly send you the author/title.  To finish I want to give you some advice; a lot of subjects are intimidating at first, and you might feel like you're not good enough but keep at it. You're not dumber than the next guy, but nothing will come for free. I wasn't good at accounting, I risked failing my first year of University because of it, I ended up passing that year with distinction because I focused (my second highest grade was Accounting). I wasn't good in economics in High School, but it was my best grades in University. I wasn't good in financial mathematics in University but I aced it in the CFA. English is your second language, but you have to remember a lot of your peers (regardless of their command of the language) are being introduced to the new concepts just as you are. Buckle down and you'll find that none of it is impossible." "Your bank's fund is not an index fund.  From your link: To provide a balanced portfolio of primarily Canadian securities that produce income and capital appreciation by investing primarily in Canadian money market instruments, debt securities and common and preferred shares. This is a very broad actively managed fund.  Compare this to the investment objective listed for Vanguard's VOO: Invests in stocks in the S&P 500 Index, representing 500 of the largest U.S. companies. There are loads of market indices with varying formulas that are supposed to track the performance of a market or market segment that they intend to track.  The Russel 2000, The Wilshire 1000, The S&P 500, the Dow Industrial Average, there is even the SSGA Gender Diversity Index.  Some body comes up with a market index.  An ""Index Fund"" is simply a Mutual Fund or Exchange Traded Fund (ETF) that uses a market index formula to make it's investment decisions enabling an investor to track the performance of the index without having to buy and sell the constituent securities on their own.  These ""index funds"" are able to charge lower fees because they spend $0 on research, and only make investment decisions in order to track the holdings of the index. I think 1.2% is too high, but I'm coming from the US investing world it might not be that high compared to Canadian offerings.  Additionally, comparing this fund's expense ratio to the Vanguard 500 or Total Market index fund is nonsensical. Similarly, comparing the investment returns is nonsensical because one tracks the S&P 500 and one does not, nor does it seek to (as an example the #5 largest holding of the CIBC fund is a Government of Canada 2045 3.5% bond). Everyone should diversify their holdings and adjust their investment allocations as they age.  As you age you should be reallocating away from highly volatile common stock and in to assets classes that are historically more stable/less volatile like national government debt and high grade corporate/local government debt.  This fund is already diversified in to some debt instruments, depending on your age and other asset allocations this might not be the best place to put your money regardless of the fees. Personally, I handle my own asset allocations and I'm split between Large, Mid and Small cap low-fee index funds, and the lowest cost high grade debt funds available to me." Current evidence is that, after you subtract their commission and the additional trading costs, actively managed funds average no better than index funds, maybe not as well. You can afford to take more risks at your age, assuming that it will be a long time before you need these funds -- but I would suggest that means putting a high percentage of your investments in small-cap and large-cap stock indexes. I'd suggest 10% in bonds, maybe more, just because maintaining that balance automatically encourages buy-low-sell-high as the market cycles. As you get older and closer to needing a large chunk of the money (for a house, or after retirement), you would move progressively more of that to other categories such as bonds to help safeguard your earnings.  Some folks will say this an overly conservative approach. On the other hand, it requires almost zero effort and has netted me an average 10% return (or so claims Quicken) over the past two decades, and that average includes the dot-bomb and the great recession. Past results are not a guarantee of future performance, of course, but the point is that it can work quite well enough. An index fund is inherently diversified across its index -- no one stock will either make or break the results. In that case it's a matter of picking the index(es) you want to put the money into. ETFs do permit smaller initial purchases, which would let you do a reasonable mix of sectors. (That seems to be the one advantage of ETFs over traditional funds...?) Financial advisers like to ask lots of questions and get nitty-gritty about investment objectives, but for the most part this is not well-founded in financial theory.  Investment objectives really boils down to one big question and an addendum.  The big question is how much risk you are willing to tolerate.  This determines your expected return and most characteristics of your portfolio. The addendum is what assets you already have (background risk).  Your portfolio should contain things that hedge that risk and not load up on it.  If you expect to have a fixed income, some extra inflation protection is warranted.  If you have a lot of real estate investing, your portfolio should avoid real estate.  If you work for Google, you should avoid it in your portfolio or perhaps even short it. Given risk tolerance and background risk, financial theory suggests that there is a single best portfolio for you, which is diversified across all available assets in a market-cap-weighted fashion. Thanks for the advice. I will look into index funds.   The only reason I was interested in this stock in particular is that I used to work for the company, and always kept an eye on the stock price. I saw that their stock prices recently went down by quite a bit but I feel like I've seen this happen to them a few times over the past few years and I think they have a strong catalogue of products coming out soon that will cause their stock to rise over the next few years.   After not being able to really understand the steps needed to purchase it though, I think I've learned that I really don't know enough about the stock system in general to make any kind of informed decisions about it and should probably stick to something lower-risk or at least do some research before making any ill-informed decisions. "From How are indexes weighted?: Market-capitalization weighted indexes (or market cap- or cap-weighted   indexes) weight their securities by market value as measured by   capitalization: that is, current security price * outstanding shares.   The vast majority of equity indexes today are cap-weighted, including   the S&P 500 and the FTSE 100. In a cap-weighted index, changes in the   market value of larger securities move the index’s overall trajectory   more than those of smaller ones. If the fund you are referencing is an ETF then there may be some work to do to figure out what underlying securities to use when handling Creation and Redemption units as an ETF will generally have shares created in 50,000 shares at a time through Authorized Participants. If the fund you are referencing is an open-end fund then there is still cash flows to manage in the fund as the fund has create and redeem shares in on a daily basis. Note in both cases that there can be updates to an index such as quarterly rebalancing of outstanding share counts, changes in members because of mergers, acquisitions or spin-offs and possibly a few other factors. How to Beat the Benchmark has a piece that may also be useful here for those indices with many members from 1998: As you can see, its TE is also persistently positive, but if anything   seems to be declining over time. In fact, the average net TE for the   whole period is +0.155% per month, or an astounding +1.88% pa net   after expenses. The fund expense ratio is 0.61% annually, for a   whopping before expense TE of +2.5% annually. This is once again   highly statistically significant, with p values of 0.015 after   expenses and 0.0022 before expenses. (The SD of the TE is higher for   DFSCX than for NAESX, lowering its degree of statistical   significance.) It is remarkable enough for any fund to beat its   benchmark by 2.5% annually over 17 years, but it is downright eerie to   see this done by an index fund. To complete the picture, since 1992 the Vanguard Extended Index Fund   has beaten its benchmark (the Wilshire 4500) by 0.56% per year after   expenses (0.81% net of expenses), and even the Vanguard Index Trust   500 has beaten its benchmark by a razor thin 0.08% annually before   (but not after) expenses in the same period. So what is going on here? A hint is found in DFA's 1996 Reference   Guide: The 9-10 Portfolio captures the return behavior of U.S. small company stocks as identified by Rolf Banz and other academic   researchers. Dimensional employs a ""patient buyer"" discount block   trading strategy which has resulted in negative total trading costs,   despite the poor liquidity of small company stocks. Beginning in 1982,   Ibbotson Associates of Chicago has used the 9-10 Portfolio results to   calculate the performance of small company stocks for their Stocks,   Bonds, Bills, and Inflation yearbook. A small cap index fund cannot possibly own all of the thousands of   stocks in its benchmark; instead it owns a ""representative sample.""   Further, these stocks are usually thinly traded, with wide bid/ask   spreads. In essence what the folks at DFA learned was that they could   tell the market makers in these stocks, ""Look old chaps, we don't have   to own your stock, and unless you let us inside your spread, we'll   pitch our tents elsewhere. Further, we're prepared to wait until a   motivated seller wishes to unload a large block."" In a sense, this   gives the fund the luxury of picking and choosing stocks at prices   more favorable than generally available. Hence, higher long term   returns. It appears that Vanguard did not tumble onto this until a   decade later, but tumble they did. To complete the picture, this strategy works best in the thinnest   markets, so the excess returns are greatest in the smallest stocks,   which is why the positive TE is greatest for the DFA 9-10 Fund, less   in the Vanguard Small Cap Fund, less still in the Vanguard Index   Extended Fund, and minuscule with the S&P500. There are some who say the biggest joke in the world of finance is the   idea of value added active management. If so, then the punch line   seems to be this: If you really want to beat the indexes, then you   gotta buy an index fund." "Nope, its not legal. Easy to explain: If you know something that isn't public known (""inside"") it's called insider trading. Hard to prove (impossible), but still illegal. To clarify: If the CEO says it AND its known in public its not illegal. In any case the CEO could face consequences (at least from his company)."