GLOSSARY TERM
Index Fund
An index fund is a fund that aims to follow the performance of a market index instead of trying to beat it.
What does this mean in practice?
Rather than choosing individual stocks or bonds actively, an index fund simply invests in the investments that are already included in a chosen index. For example, it may follow a US stock index, a European stock index or a global market index. Because this approach is simple, index funds are often lower-cost than actively managed funds. They also make diversification easier, since one fund can already include many companies or bonds.
Example
A fund that follows the S&P 500 invests in large US companies. A fund that follows a broad world index spreads your money across many companies in different countries through one investment.
Why it matters
Index funds can make investing simpler, cheaper and more diversified. For many long-term investors, they are one of the easiest ways to build wealth steadily without needing to pick individual winners.
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