Index fund
An index fund is a fund that buys every stock in a market index, such as the S&P 500, in the same proportions, so it matches the market's return instead of trying to beat it.
Because no manager picks stocks, index funds charge very low fees. Over long periods most actively managed funds fail to beat them after fees, a finding popularised by Vanguard founder John Bogle.
Related terms
- ETF (exchange-traded fund): An ETF is a fund that holds a basket of investments, such as all the stocks in an index, and trades on an exchange like a single stock.
- Market index: A market index is a number that tracks the combined price of a set group of stocks, such as the S&P 500 (500 large US companies), to show how that part of the market is doing.
- Expense ratio: The expense ratio is the yearly fee a fund charges, as a percentage of the money you have in it.
- Diversification: Diversification is spreading money across many different investments so a loss on one has less effect on the whole portfolio.
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