Index Fund
Definition
A mutual fund or ETF designed to track the performance of a specific market index like the S&P 500. Index funds offer broad diversification, minimal management, and very low fees. Warren Buffett recommends them for most investors.
Related Terms
ETF (Exchange-Traded Fund)
A basket of securities that trades on a stock exchange like an individual stock. ETFs typically track an index, sector, or strategy. They offer diversification, low fees, and tax efficiency. Examples: VOO (S&P 500), QQQ (NASDAQ), VTI (Total Market).
Expense Ratio
The annual fee charged by a fund (ETF or mutual fund) expressed as a percentage of assets. A 0.03% expense ratio means you pay $3 per year per $10,000 invested. Low-cost index funds often have expense ratios under 0.10%.
Mutual Fund
A pooled investment vehicle managed by a professional fund manager that buys a diversified portfolio of stocks, bonds, or other securities. Unlike ETFs, mutual funds are priced once daily at market close.
Passive Investing
An investment strategy that seeks to match market returns through index funds rather than trying to beat the market through stock picking or market timing. Research shows passive investing outperforms active management over long periods.
S&P 500
Standard & Poor's 500 — an index of 500 of the largest US publicly traded companies. Widely considered the best single measure of the US stock market. Average annual return since 1926: approximately 10%.
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