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However, how well a stock market index can reflect an economic development is controversial. Indices are also regularly used as benchmarks to measure and compare investment performance.

But be careful when comparing: (performance) charts of equity funds are often compared with a price index. As described above, dividends are not included in the price index, which automatically makes the fund performance look better. Those who know the difference between a performance and a price index know that there is a double standard here.

The most important types of indices that every investor should keep in mind

Indices exist for almost every conceivable market. In addition to the well-known stock indices such as the DAX, Dow Jones and Nikkei, there are also the following index groups, among others:

  •     Bond indices
  •     Sector/industry indices
  •     Commodity indices
  •     Country indices

The most important indices are calculated and published by financial service providers such as Deutsche Börse or MSCI. The number of indices existing worldwide is unmanageable. The German stock exchange alone calculates over 3,000 indices. Since indices are suitable as investments, the following types of indices should be kept in mind by every investor.

MSCI World

The best-known global stock index is the MSCI World. It has been published by the financial services provider Morgan Stanley Capital International since 1968. The index contains over 1,500 stocks from more than 20 countries.

However, a closer look at the index composition reveals that half of the companies included in the index are from the USA. This is due to the market capitalisation-based composition of the MSCI World.

Thus, the MSCI World is only a "world" ETF to a limited extent and is also heavily dependent on the performance of the US stock markets. Those who want to invest in countries from the so-called emerging markets should take a look at the MSCI Emerging Markets Index.

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MSCI Emerging Markets Index

The MSCI Emerging Markets Index tracks the performance of the stock markets of more than 20 emerging markets. But again, it's time to take a closer look! Just under 60% of the market-capitalised index is made up of the four countries China, South Korea, Taiwan and Brazil. Countries such as Peru and Egypt are represented, but with a weighting of less than 0.5% they play almost no role. The top 10 positions also include international blue chips such as Samsung, China Mobile and Gazprom.

Sector indices

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These are specialised indices developed to measure the performance of specific sectors and industries. There are indices for all sorts of sectors: Biotechnology, Precious Metals, Energy, Financials, Healthcare, Logistics, Media and many more.

Bond indices

Bond indices represent the average prices of a bond portfolio consisting of certain bonds. As with share indices, bond indices are managed as performance indices and also as price indices. Interest income is included in the performance index. They are not included in the price index.

How to invest in an index

An index cannot be traded directly because it is not a product in itself. However, there is another simple and inexpensive way to invest in indices - with so-called Exchange Traded Funds, or ETFs for short. ETFs are exchange-traded index funds that passively replicate the performance of indices as closely as possible. The fund usually contains all the securities that the index also contains. Thus, in principle, the ETF cannot underperform its underlying index.

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