What’s an Index Fund?

By moneyredpill | MoneyRedPill | 14 Mar 2020


An index fund is a type of passive mutual fund that was introduced in the 1970s by Vanguard’s Jack Bogle and gained traction in the ‘90’s alongside the rise of Exchange-Traded Funds (ETF’s) and the internet, both of which enabled small and amateur investors to participate in market trading and investing sans a professional financial manager. Index funds track components of a particular market index, commonly the big 3: S&P 500, Dow Jones, or NASDAQ, and provide broad market exposure and low operating fees. Investing in an index fund is a common, hands-off approach to long-term and retirement investing, and recommended by Warren Buffett as an excellent core retirement strategy for the average investor. By gaining exposure to all of an index’s company stocks, the average investor need not rely on researching and stock-picking individual companies, one should merely “set and forget.” Better yet, coupled with low expense ratios, most index funds have outperformed actively-managed funds over the last 10 years.

 

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