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What are the risks of a passively managed index fund?

Passive Index Funds
Passive Index Funds : Image Source: axisbank.com

A passively managed index fund is a fund that is based on an index that doesn’t chase the latest trend; the managers make sure the underlying investments are always from the index it tracks. Passively managed funds are not always index funds, but index funds are almost always passively managed. Investors accept index funds as lower-risk, long-term investments based on their underlying assets’ historical performance. Many financial advisors or experienced investors suggest taking more risk when you ‘re younger because you have more time to recoup any losses. When you’re older, they advise taking less risk.

Over short periods, stock prices (measured by the stock market indexes) can have volatile swings up or down. The chance that an investment will lose value is the basic premise of risk. When you purchase a stock, you don’t know if it will gain or lose value. Passively managed index funds reduce the amount of risk an investor takes by tracking or investing in, the stocks picked and placed on an index by knowledgeable investors and finance professionals. The reduction of risk does not mean there is no risk. Passively managed index funds can and have lost value in market fluctuations.

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