An index fund is a type of mutual fund that purchases similar stocks as in a particular market index. This implies that the scheme will perform in tandem with the benchmark index it tracks.
John Clifton “Jack” Bogle was the founder and chief executive of The Vanguard Group, and is credited with creating the first index fund.
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.
Also, there is no active trading of stocks. All these factors lead to the low managing cost of an index fund.
However, index funds still cost a little money. In this video, Bogle talked about the real cost of index funds.
An avid investor and money manager himself, he preached investment over speculation, long-term patience over short-term action, and reducing broker fees as much as possible.
The ideal investment vehicle for Bogle was a low-cost index fund held over a period of a lifetime with dividends reinvested and purchased with dollar cost averaging.
Source: Finance Jane.
