How to invest in the DAX Performance Index
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Investing in Germany’s DAX Performance Index could be the right option for you. There are lots of ways to invest, and we’re here to guide you through the entire process and make you feel more confident.
Where can I buy into the DAX Performance Index?
What is the DAX Performance Index?
The DAX Performance Index is Germany’s benchmark stock index, consisting of 30 major companies traded on the Frankfurt Stock Exchange. It’s Germany’s equivalent of the Dow Jones Industrial Average, which also features 30 blue-chip stocks but is based in the United States.
Is it a good investment?
It can be, depending on what your goals are as an investor. The DAX Performance Index is filled with blue-chip stocks from numerous different industries, including pharmaceutical companies, insurance companies, and car manufacturers. By investing in an index of 30 of Germany’s most successful stocks, you gain the advantage of diversification that you don’t get by investing in one or two individual stocks.
That said, every investment carries some risk. Stock indices perform well when markets are bullish, but fall sharply when bear markets set in. It’s always important to analyse underlying market conditions before investing in an index such as the DAX Performance Index.
How do I invest in the DAX Performance Index?
Here are three steps you need to consider before investing:
- Choose an investment type
- Use our top tips to succeed
- Choose a platform to invest with
1. Choose investment type
There are many options available, so figure out the approach that works best for you before investing your money. Consider factors such as the size of transaction costs and what level of customer service you want before making your selection. Here are some of the most popular ways to invest:
ETFs
An ETF (which stands for exchange-traded fund) is an investment fund that can be traded on a stock exchange. ETFs behave like stocks in many ways: they trade during regular market hours, and can be traded by setting bid and ask prices on a brokerage platform, just like with a stock. ETFs are a very different type of investment vehicle, though. They can hold different assets, such as individual stocks, bonds, or commodities, or serve as a proxy for a stock index like the DAX. An ETF can be an effective, low-fee way to invest, while allowing you the flexibility to trade your investment.
ETFs are a solid method of investing if you want to benefit from the diversification of the DAX Performance Index, but make sure to keep an eye on how markets are performing before trading DAX. If a bear market sets in, indices such as Dax 30 tend to perform badly so you might want to sell your ETF holdings.
Individual stocks
Another way to invest in the DAX is to buy shares of all 30 stocks that the index tracks. This way, you can decide which stocks you want to keep longer-term, and which ones you want to sell – something you can’t do if you invest in the index as a whole. The problem with that approach is that making 30 separate trades to buy each stock, and then more trades on top of this is you decide to sell some.
This way of DAX trading is best used if you want to try out all DAX Performance Index stocks, then pare down that list to get to a smaller number of top performers. As the DAX Performance Index racks only 30 stocks, this strategy is more feasible than with larger indices such as the FTSE 100, but investing this way will still take more time and incur more significant transaction fees than other options.
Mutual funds
A mutual fund is a professionally-managed investment fund that pools money from many different investors all at once, then invests that money in different assets. A DAX mutual fund (also known as an index fund), like a DAX ETF, enables you to invest in all 30 DAX stocks at once. Unlike ETFs, however, mutual funds are bought through a broker or directly from the company that administers the fund and can only be bought at the end of the stock market’s trading day. Another negative of DAX mutual funds is that they charge higher fees than ETFs do.
A DAX Performance Index mutual fund makes the most sense for investors who want to buy and hold for a longer stretch of time rather than get into DAX trading, since it’s more difficult and more expensive to trade DAX than an ETF.
2. Use our top tips to be a successful investor
Review these investment tips before you start, bearing these in mind will give you the best chance of long-term investment success.
- Do your research. Take the time to consider all the pros and cons of investing in the DAX Performance Index, as well as the specific method you’ll use to invest in it. Having a plan ahead of time will improve your chances of success, and also help you avoid emotions such as fear and greed, which can cloud your judgment and cause you to make rash decisions when markets become unstable.
- Set a budget. The budget you establish should fit your tolerance for risk, as well as your financial status. If you invest more than you can afford to lose, you could run up substantial losses that hurt both your confidence and your ability to make future trades.
- Select the right platform. We’ve highlighted the different trading platforms you can use. Review them all, then choose the one that works best for your investment needs and goals.
- Grow your investments gradually. For beginner investors, it’s best to take things slow at first by investing a smaller amount of money. You can always invest larger amounts as you become a more seasoned, skilled investor.
- Think long-term. Investing in an index such as the DAX Performance Index is often a long-term strategy. Buy into the index, then try to hold for big gains as markets rise, and be on the lookout for a bear market setting in, as indices perform badly in these conditions.
3. Choose where to invest in the DAX Performance Index
Once you have decided which investment asset works best for tapping into the DAX Performance Index, you’ll need to find a service that will execute your trade. Here are some of the best options for investing in the DAX.
- Brokers & trading platforms. Online brokers offer easy-to-use tools and low transaction fees, making them attractive for all types of investors. On the downside, online brokers don’t usually offer much investment advice, so if you’re looking for more hands-on help, consider other options.
- Robo advisors. Robo advisors rely on algorithms to execute trades, so transaction costs aren’t very high here either. Even better, some robo advisors will also allow you to discuss your investment strategy with an actual human advisor to help you make the right decisions. This makes robo advisors a potentially effective hybrid approach, though still a bit more hands-off than investing through a dedicated financial advisor.
- Financial advisors. Financial advisors offer the most help to investors, explaining the risks and rewards associated with all kinds of different investment choices. This can be an especially big help for novice investors. However, DAX Performance Index investing isn’t all that complicated, so it might not be worth the expensive fees that financial advisors charge.
- Banks. Your bank offers yet another option. If you go with your bank, you gain the convenience of having all of your financial instruments (for example, your checking account, savings account, line of credit, as well as your investments) in one place. The problem is that banks tend to charge high fees without providing the additional support you’ll get with a financial advisor. This means that unless you’re primarily concerned with convenience, you’ll usually be better off investing somewhere other than with your bank.
Ready? Here’s our top recommended broker
What should I do now?
If you’re ready to invest, great! Simply go to your chosen platform’s website, punch in the ticker symbol of the investment asset you want to use to get a piece of the DAX, then click Buy. You’re now good to go!
Try some of our investment courses for beginners
Do you need more time before you start? No problem. Use that time to review our easy-to-follow educational courses and news updates, right here at Invezz.com.
Stock Markets 101
Long-term Stock Investing
Short-term Stock Trading
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