Index fund
A fund that holds the securities in a published index in the same proportions, rather than trying to pick winners.
An index fund is a fund built to mirror a published index — a defined list of stocks or bonds, weighted by a stated rule. If the index adds a company, the fund adds it. If the index drops one, the fund drops it. Nobody at the fund is deciding what to own.
Because there is no research team choosing individual securities, expense ratios on index funds tend to run lower than on funds that pick. Over decades, a smaller annual fee is a large amount of money — the arithmetic is in the expense-ratio entry.
An index fund is not a guarantee of a return. It rises and falls with whatever slice of the market it tracks. Broad-market index funds move with the market at large; narrower ones move with narrower slices. Whether an index fund suits any particular person is a decision about risk, timeline, and taxes — not a question this entry answers.
Plumb is financial education, not financial, investment, tax, or legal advice.