Definition
Index funds passively track a benchmark index (S&P 500, Total Stock Market, etc.) by holding securities in the same proportion. They offer broad market exposure at minimal cost, with expense ratios as low as 0.015%. John Bogle (Vanguard founder) pioneered index investing, which has grown to represent over 50% of U.S. equity fund assets.
lightbulb Example
A total stock market index fund tracks 3,500+ U.S. stocks at 0.03% expense ratio. Over 20 years, it outperforms 85% of actively managed large-cap funds primarily because of the cost advantage.
verified_user Key Points
- Passively tracks a market index
- Extremely low costs (0.015-0.10%)
- Outperforms majority of active managers long-term
- Available as both mutual funds and ETFs