What does Index Fund mean?

An index fund is a fund built to track a market index like the S&P 500 exactly, rather than trying to beat it — low cost, broad diversification, no stock-picking.

An index fund simply holds the same stocks as a market index (like the S&P 500) in the same proportions, aiming to match its return rather than beat it. Because there's no active stock-picking, fees are usually very low — a big reason index funds are a popular long-term default.

Index Fund example

$10,000 in an S&P 500 index fund charging 0.03% costs about $3 a year. The same amount in an actively managed fund charging 1% costs $100 a year — and most such funds trail the index over long periods.

Common beginner mistake

Selling an index fund in a crash. Owning the whole market only works if you're still holding it when it recovers.