GLOSSARY // General Investing
Index Fund
An index fund is a mutual fund or ETF built to replicate the holdings and weighting of a specific benchmark, like the S&P 500, rather than trying to beat it through active stock picking. Because there is no research team trying to outsmart the market, index funds charge dramatically lower fees than actively managed funds.
The evidence for index funds is one of the more consistent findings in investing: over 10 and 15-year windows, the large majority of actively managed US large-cap funds have historically underperformed their benchmark index after fees, which is the core argument for using index funds as a portfolio's foundation.
A $10,000 investment growing at 8% a year for 30 years reaches about $100,600 with a 0.03% index fund fee, but only around $85,700 with a 1% actively managed fund fee, purely from the fee drag compounding over time, before accounting for any performance difference at all.
Related terms
Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.