Index Funds

An index fund is an investment like a stock, but it's safer and usually performs better. An index fund means investing in many businesses at once. You already know about indexes like the Dow Jones Industrial Average and the NASDAQ 500.

Index funds have lower costs than mutual funds because there is little or no management required. With mutual funds, you have experts trying to buy and sell stocks to maximize profits, but they too often fail to perform better than the market taken as a whole, and they add expenses that reduce the growth of your investment.

John Bogle and Warren Buffet are two well known proponents of investing in index funds.

Just investing in an index fund can be boring, but you could take 5 percent of your money to play with picking stocks or day trading strategies. If you find that you're consistently making money from your stock picks, you could devote more of your money to it.

There are many kinds of different index funds in case you want to focus on a particular part of the market. Large-cap indexes mean investing in the biggest businesses. Small-cap indexes mean investing in businesses with a market capitalization below $2 billion. They call that small. I like small cap indexes such as the Vanguard Russell 2000 (VTWO) for longer-term investing because it just means not investing in those businesses that are so big that they seem to get away with a lot of bad behavior, but this starts to become activism or wishful thinking instead of an investing strategy.

There are index funds for various sectors and industries. For example, the ROBO Global Robotics and Automation Index tracks dozens of robotics, AI, and automation companies.

This page is intended as educational and informative and is not to be taken as personalized financial advice. Strong efforts are made to ensure these documents are correct, but there could be mistakes, especially when first uploaded. Please verify important facts before making investing decisions.