What are index funds?

Here's an explanation for Index funds are mutual funds or exchange-traded funds (ETFs) that have one simple goal: To mirror the market or a portion of it. For example, an S&P 500 index fund tracks the collective performance of the hundreds of companies in the S&P 500. If the S&P 500 is up 5 percent in a year, the fund should be close to that, too.

What are value index funds?

Value index funds aim to copy the performance of indexes that include these companies’ stocks. In addition to the S&P 500 here are several examples of large indexes tracked by index funds: Nasdaq Composite Index®: The Nasdaq is another popular index made up of more than 2,500 stocks. It’s heavy with technology companies over other sectors.

Are index funds a good investment?

The returns generated by an index fund generally never exceed the performance of the index itself, if only because of index fund expense ratios, which are the annual management fees collected by index fund managers. Since index funds are passively managed, they are actually more likely to outperform funds with active managers over the long term.