Investing 101
1:29
What Are Index Funds? | Index Funds Explained
Index funds are a way to invest in multiple stocks within a particular group. In this 2 minute video, Titan's Christopher Seifel explains index funds.
Video Transcript
An index fund is a user friendly way to invest in every stock within a particular index or grouping. The goal of an index fund is to mirror the performance of a benchmark market index. For example, the S&P 500 stock market index tracks 500 of the largest publicly traded U.S. companies from leading industries. You can't technically invest in the S&P 500. So if you ever hear someone say, "I invest in the S&P 500." What they mean is they invest in an index fund that mirrors the positions and movements of the S&P 500. Index funds don't make decisions about what to include or delete from the fund.
They follow the index. Investing in index funds is a hands off and passive approach that investors use to earn a return in line with the market. The thinking is that since markets tend to rise over time, index funds provide long term capital appreciation while holding down fees that tend to eat into returns. I'll leave you with this interesting fact. Jack Bogle, the late founder of Vanguard, spent his career championing low cost passive index investing. His son found a career as an active, high fee hedge fund and mutual fund manager. When asked by the Wall Street Journal why Jack invested some of his own money into his son's funds, he replied, "We do some things for family reasons. If it's not consistent, well, life isn't always consistent."
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