Index Funds
Today, I’ll cover what an index fund is. But first let’s talk about what an index is.
It’s not the index that’s in the back of book referring to where you can find specific information. In markets, an index tracks the performance of a group of assets (companies, currencies, companies AND currencies). It is a tool. A tool to track a specific asset’s performance against a group of assets. Like how well NVDA has been performing against the S&P 500 since January. It can also be used to invest in that group of assets the index represents, like an index fund.
If you’re thinking — wait. Isn’t that an ETF? Yes. An index fund can be an ETF. And most ETFs are index funds. You can safely interchange those words most of the time. Just that the idea of an index fund is older than that of an ETF and comes from a time of mutual funds (though most of us don’t do that anymore — eww) where there needed to be a difference made clear between funds that purely mimicked an index vs. those that were actively managed.
Index funds are a great way to invest if you believe in efficient markets(what?) and don’t have time to research independent investments.
Plus, markets have proven consistently that it is incredibly difficult to beat the overall market so it can be a great way to increase the value of your investments & achieve your long-term wealth goals.