Index Fund

An index fund is a portfolio built to match the holdings and weights of a market index—such as the S&P 500, which represents 500 of the largest US companies. When the index rises, the fund rises by the same amount; when it falls, the fund falls.

Because index funds simply replicate an index rather than paying analysts to pick stocks, their operating costs are extremely low. Decades of research show that the majority of actively managed funds fail to outperform their benchmark index after fees over the long run, making low-cost index investing a compelling default strategy for most investors.

Index funds are available as mutual funds or ETFs. They offer instant diversification across hundreds or thousands of securities, making it straightforward to build a globally diversified portfolio with just a handful of funds.