An index fund is an investment that tracks a market index, typically made up of stocks or bonds.
Index funds typically invest in all the components that are included in the index they track, and they have fund managers whose job it is to make sure that the index fund performs the same as the index does.
The S&P 500 Index, the Russell 2000 Index, and the Wilshire 5000 Total Market Index are just a few examples of market indexes that index funds may seek to track.
Great investor Warren Buffett suggests that for passive investors, index funds are the best choices.
Index funds have several advantages, including:
Low fees. Since an index fund mimics its underlying benchmark, there is no need for an efficient team of research analysts to help fund managers pick the right stocks.
No bias investing. Broad market exposure. Tax Benefits of Investing in Index Funds. Easier to manage.
However, index funds and index fund market also have some risks that investors need to know.
In this video, Vanguard Group founder Jack Bogle discussed 5 big risks he saw in the index fund market.
Warning: This video is to show you John Bogle’s view about risks of the index fund market. Please do your research before doing any investment. A good balance between return and risk is the key to investment success.
Source: Finance Jane (Shared via CC-BY)
