What Is an Index Fund?
An index fund is a fund that copies a market index, like the S&P 500. Instead of picking winners, it simply buys every company in the index.
How an index fund works
An index is a list of companies picked by fixed rules. The S&P 500, for example, holds about 500 large US companies. An index fund buys all of them in the same mix. When the index goes up 10%, the fund goes up about 10%, minus a small fee.
Index fund vs ETF
An index fund can be a mutual fund or an ETF. Many ETFs are index funds. The idea is the same: copy the index at a low cost.
Are index funds a good investment?
For many people, yes. They are cheap, spread your money widely, and need no stock picking. Over long periods, most professional fund managers have failed to beat simple index funds after fees.
They still go down when the whole market goes down. In a bear market, an index fund can lose a lot for a while.
How much can an index fund grow?
No one can promise a number. But history shows how compounding works: $500 a month that grows 7% a year turns into about $87,000 after 10 years. Putting in money on a regular schedule is called dollar-cost averaging.
See it in real companies
Open a company to see what it sells and how it makes money.