Long-term investing
Index fund
Definition
A mutual fund or ETF that holds the stocks of a market index in the index’s proportions, aiming to match its return rather than beat it.
Example
Imagine an index made of three stocks weighted 50%, 30% and 20%. An index fund with $10,000 to invest buys $5,000, $3,000 and $2,000 of them, whatever its manager thinks of each company. If the index gains 8% in a year and the fund’s costs are 0.10%, the fund returns about 7.9%, slightly behind the index because of those costs.
Hypothetical numbers, for illustration only.
Also defined in
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