What is an index fund?

An index fund tracks a specific market index by holding the same stocks in the same proportions as that index.

The S&P 500 is a list of the 500 largest publicly traded US companies, weighted by size. An S&P 500 index fund buys shares in all 500 in the same proportions. When Apple is 7% of the index, the fund holds Apple at 7%.

When the index rises, the fund rises by the same amount. The fund does not try to beat the market it matches it. This is called passive investing.

Available as:

• Mutual funds (priced once daily)
• ETFs (traded throughout the day like stocks)

Popular options: Vanguard S&P 500 ETF (VOO), iShares Core S&P 500 ETF (IVV), Vanguard Total Stock Market ETF (VTI).