Index fund
Explain it like I’m new
A fund that buys a little of everything in a market index (like the S&P 500) instead of trying to pick winners. Low cost, broadly diversified.
Technical version
A passively managed mutual fund or ETF designed to replicate the performance of a specified market index.
Why people get confused
- ✕‘Index funds are risk-free.’ They still rise and fall with the market.
- ✕‘I need to time my buys.’ Regular contributions usually beat market timing.
What decision this affects
Most active managers underperform their index after fees over long periods.
- →Compare expense ratios — under 0.10% is widely available.
- →Pick total-market or S&P 500 for simplicity.
Related next concepts
An Exchange-Traded Fund — like a mutual fund, but it trades on a stock exchange throughout the day.
A retirement account you open yourself. You pay taxes now, and qualified withdrawals later are tax-free.
A retirement savings account offered by your employer. Money goes in from your paycheck before taxes, grows over time, and your employer may add a matching contribution.
Trusted sources
- Index fund vs. ETF?
- Which index fund should I pick?
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