Published on 24 Apr 2024 on Bankrate via Yahoo Finance

Index funds: What they are and how to invest in them

Index funds are mutual funds or exchange-traded funds (ETFs) that have one simple goal: To mirror the market or a portion of it. For example, an S&P 500 index fund tracks the collective performance of the hundreds of companies in the S&P 500. If the S&P 500 is up 5 percent in a year, the fund should be close to that, too.

Index funds are typically passively managed, meaning there is no active manager to pay. Rather than trying to bet on individual stocks to beat the market, an index fund simply aims to “be the market” with an autopilot approach that holds the same securities in the same proportion as the index. Here’s the kicker: Most active fund managers actually fail to beat the market and instead underperform their target index. Why pay more for less when you can take advantage of the track record of a broad-based market index?