What is an Index fund

Index funds are mutual funds or ETFs that track the performance of a specific market benchmark—or “index,” like the S&P 500 Index—as much as possible. In this way you follow the performance of the market. Your investment won’t outperform nor underperform. This is possible because of the broad diversification built in the index funds. They contain a vast arrange of stocks, bonds, or sometimes both, based on the market benchmark they track. If the index goes up, also the fund will, and viceversa. In any case you cannot outperform the market, but you will also minimize your losses. They also cost less than actively managed fund. You have a portfolio manager in both cases. But with Index funds you won’t pay his expertise or the time to select which stocks or bonds to buy. That’s why people call indexing a “passive” investment strategy.