Index Fund

An index fund is a type of mutual fund or ETF designed to track the performance of a specific market index, such as the S&P 500, total stock market, or bond indices. Rather than trying to beat the market through active stock selection, index funds aim to match the market's return by holding the same securities in the same proportions as their target index. Index investing was pioneered by John Bogle, founder of Vanguard, who launched the first index mutual fund for individual investors in 1976. His insight was that most active managers fail to beat the market over time, and those who do rarely persist. By matching the market at minimal cost, index funds would beat most actively managed funds. The advantages of index funds are compelling. Costs are extremely low because there's no need for expensive research or frequent trading - expense ratios can be as low as 0.03%. Diversification is built-in, spreading risk across hundreds or thousands of securities. Tax efficiency tends to be high because low turnover means fewer taxable events. And performance is predictable - you'll get the market return minus minimal expenses. Index funds are available for virtually every market segment. Total stock market funds provide exposure to the entire U.S. stock market. International funds cover developed or emerging markets. Bond index funds track various fixed-income benchmarks. Target-date funds automatically adjust stock/bond allocations as you approach retirement. Research consistently shows that index funds outperform the majority of active managers over long periods, particularly after accounting for fees. This has led to massive growth in index fund assets and significantly reduced costs for all investors. For most individual investors, a simple portfolio of low-cost index funds - perhaps a total stock market fund, an international fund, and a bond fund - provides excellent diversification at minimal cost. Index investing is one of the most evidence-based, accessible wealth-building strategies available.