What is an index fund?
A fund that simply holds every stock in an index like the S&P 500, in the same proportions, instead of trying to pick winners. It is cheap, diversified and has beaten most professionally managed funds over time.
An index fund is a fund that does not try to be clever. Instead of a manager picking stocks, it just buys everything in a published index, like the S&P 500 or the total US market, in the same weights. When the index goes up 1 percent, the fund goes up about 1 percent. That is the whole design.
Two things follow from that. It is cheap, because there is nothing to pay a manager for; the biggest index funds charge a few hundredths of a percent a year. And it is diversified by construction, because buying the S&P 500 means owning 500 companies in one purchase.
The surprising part is how well "not trying" works. Over any ten- or fifteen-year period, the large majority of actively managed funds fail to beat the index they compete with, mostly because their fees eat the difference. Warren Buffett has said for years that an S&P 500 index fund is what most people should own, and he put it in his own will.
You can buy one as a mutual fund or as an ETF; the ETF versions trade like a stock and are what most people use at a broker. Names like VOO, IVV, SPY and VTI are all index funds tracking the S&P 500 or the whole market.
Informational only, not financial advice. Updated September 4, 2026.
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