Index Fund

A mutual fund that invests in a benchmark index like the S&P 500. Expense fees are usually low due to the low turnover. Since indexing returned 9-10% compounded annually historically, it is attractive to most investors. With an index fund, one gets automatic diversification among stocks that compose the index. The fact that most actively managed funds do not beat index returns makes indexing very attractive to investors with their focus on long term results.

Exchange Traded Funds (ETFs) are arguably an even lower cost way for investors to invest in an index. For example the SPY is an ETF that tracks the overall performance of the S&P 500 market index.

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