Finance
How does index investing work?
Index investing means buying a fund that simply tracks a whole market index, like the S&P 500, instead of trying to pick winning stocks. You get broad diversification at low cost, matching the market's overall return rather than beating it.
See it in motion.
Watch a 2-minute animated lesson that shows exactly how index investing works.
Step by step
- 1You buy a fund that mirrors a market index.
- 2It gives instant, broad diversification.
- 3Fees are low since there's no active stock-picking.
- 4It aims to match the market, not beat it.
Frequently asked questions
- How does index investing work?
- You invest in a fund that holds all the stocks in an index, tracking the market's overall performance.
- Why is index investing popular?
- It's low-cost, diversified, and historically beats most active funds over the long run.
- What's the downside of index investing?
- You can't outperform the market, and you ride its downturns as well as its gains.