Morning Finance Filling Word of the Day: Index Fund

Index Fund

*well technically two words... 😁

First, an index (one word) is a group of stocks or bonds (could be other things) that are measured together to create a representation of a market that can be compared against something. Two of the most common stock indexes are the S&P 500 and the Dow Jones Industrial Average (DJIA). These two, in particular, are groups of stocks trying to replicate the US stock market.

An index fund is a mutual fund that tries to represent or match an index such as the S&P 500 or the DJIA.

A mutual fund, however, is a pool of investors' money that invests in stocks or bonds (could be other things).

This means that an index fund is a pool of investors' money that invests in stocks or bonds to match the performance of a specific stock or bond index.

Index funds are very popular because they have lower fees than traditional mutual funds and they provide good diversity to lower risk. Most of my investments actually sit in index funds because of both of those aspects as well.