Investing

What is an index fund?

An index fund is an investment fund that automatically buys all (or nearly all) the shares in a given index — for example, the entire world market. When you buy a share, you own a tiny piece of thousands of companies at once.

Instead of trying to pick the 'right' stocks, you spread your risk broadly. Historically, the world market has returned roughly 7% per year on average over long periods (before inflation). No single stock can guarantee that.

Think of it as a shopping basket of all the world's stocks: you get a bit of Apple, a bit of Novo Nordisk, a bit of Toyota — all in a single purchase.

Why passive investing?

Passive investing means following the market rather than trying to beat it. The research is clear: over 15+ year periods, approximately 90% of actively managed funds underperform their benchmark index.

The primary reason is costs. An active fund typically charges 1-2% in annual fees (AOP), while a passive index fund can cost as little as 0.07%. Over 30 years, that difference becomes enormous thanks to compounding.

Passive investing requires no market timing, no stock analysis and no constant monitoring. You set up an automatic transfer and let time do the work.

AOP explained

AOP (Annual Cost Percentage / Arlige Omkostninger i Procent) is the total fee you pay for holding a fund. It includes management fees, trading costs and other operating expenses — all rolled into one number.

Let us look at the difference over 30 years with an investment of 1,000,000 kr. and a gross return of 7% per year:

The difference is approximately 2,820,000 kr. — nearly three million kroner lost to fees. Low costs are the most important factor you can control.

Choosing a platform

In Denmark, the two most popular investment platforms are Nordnet and Saxo Bank. Both offer aktiesparekonto (ASK), maanedsopsparing (automatic monthly investing) and access to most relevant markets.

The main difference is the brokerage fees (kurtage). Saxo Bank is generally cheaper per trade, while Nordnet has a wider selection of funds in their maanedsopsparing. Both charge 0% in custody fees.

Maanedsopsparing and DCA

DCA (Dollar-Cost Averaging) means investing a fixed amount at regular intervals — typically every month — regardless of what the market does. In Denmark, you can automate this with a maanedsopsparing at Nordnet or Saxo Bank.

The advantage is that you buy more shares when prices are low and fewer when prices are high. Over time, this evens out your purchase price and removes the need to 'time' the market.

Most importantly: maanedsopsparing removes the emotional component. You do not need to think about whether it is a good time to invest — you do it automatically, every month, no matter what. Consistency beats timing.

At Nordnet, trades in the maanedsopsparing are commission-free. At Saxo Bank, brokerage is also very low in their automatic investment service. Set it up once and forget about it.

Rebalancing

Rebalancing means adjusting the distribution of your investments so they match your desired allocation. If you have chosen a global index fund, the fund handles most of it itself — it rebalances automatically.

Rebalancing is most relevant if you have multiple asset classes (e.g. equities and bonds). If your target allocation is 90/10 equities/bonds and the stock market rises sharply, you may suddenly be at 95/5. Then you sell some equities and buy bonds to return to 90/10.

A simple approach: check your allocation once a year (e.g. 1 January). If an asset class deviates by more than 5 percentage points from your target, rebalance. For most people with a single global index fund, rebalancing is rarely necessary.