What Is an Index Fund?

Index funds are very useful for those who wish to take a slow and steady approach to investing.

Below, you can learn about what an index fund is.

Basics of the Index Fund

Index fund essentially tracks the stock market as a whole. An index fund buys shares in a whole variety of companies and keeps track of the overall performances of your shares and the market.

Index funds are passive accounts and go up and down with the stock market.

Should You Get a Index Fund

There are a variety of factors that make index funds so popular with investors. One of the main attractions is that index funds have lower fees than accounts that require more activity.

Another attractive feature is that index funds are generally very diverse, this diversification means lower risk so that if one company fails the rest of your investments don’t go down with it.

Also take note that index funds usually generate less taxable income.

Index Funds and Efficient Market Hypothesis

The efficient market hypothesis states that all necessary information about stocks is already factored into their price. Therefore it means its impossible to beat the market by finding undervalued stocks.

An index fund does not try to outperform the market it tries to do the best it can.

Author’s Verdict

Using an index fund properly can give you a jumpstart on your finances!

Hopefully the above information helps you better save.

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