Index Fund

When it comes to investment products, index funds are collections of assets that are intended to follow a certain industry sector of the financial market, or they are a basket of investments that have been collected to match a specific strategy or risk profile.

Index funds are considered to be a passive form of investment. This means that the fund manager does not actively look for ways to improve the performance of the fund. This strategy is in contrast to actively managed mutual funds, which will have a portfolio of investments, like stocks and bonds, which are changed on a regular basis based on the manager’s belief as to what will provide the greatest growth potential for the fund.

The appeal of index funds is that they allow you, as an investor, to do pretty well at remarkably low cost. Also, compared to traditional active investment strategies, indexes do not have large performance gaps. As the market rises and falls, investors in active funds can find themselves far away from a fund’s goal and often face the extra fee of additional costs that come with these shifts.

The most well known of these index funds are probably the index funds that track the S&P 500 and the Dow Jones Industrial Average. Both of these funds represent a basket of companies that a broad cross section of the investment world considers to be leaders in their respective fields.