Stocks & Investing

Index Fund

A fund that simply owns everything in a market index, at very low cost.

An index fund tracks a benchmark like the S&P 500 instead of trying to beat it. Because there is no expensive manager picking stocks, fees are tiny, and over long periods low-cost index funds beat most active funds. For most people, a broad index fund is the simplest good long-term investment.

For example

An S&P 500 index fund charging 0.03% costs you $3 a year per $10,000 invested, versus $50 to $100 for a typical active fund.

Related terms

ETF (Exchange-Traded Fund)Expense Ratio (Fees)Diversification

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