Index funds are simple, low-cost ways to gain exposure to markets. They’re most commonly available as mutual funds and exchange traded funds (ETFs). While stocks, bonds, commodities and real estate have been around for centuries, index funds have revolutionized how investors access these assets and build portfolios to seek outcomes that matter most to them.
WHY INDEX FUNDS?
There’s an index, and an index fund, for almost every market and investment strategy you can think of. More choice gives investors a lot of flexibility to build for the goals they want.
When you combine the impact of lower fees and tax efficiency, the potential savings gained by using an index fund can really add up. Index ETFs and mutual funds cost about 1/3rd as much as typical active mutual funds.
Index funds generally aim to match rather than beat their benchmarks, minus costs. Only 18% of active mutual funds outperformed their benchmarks over the past five years.
What to know about index funds
Round out your knowledge of indexing, ETFs and index mutual funds.
Indexing has democratized investing.
Indexes come in all shapes and sizes – including those that track the same market.
Index funds can offer access to many of the same outcomes that actively managed funds do.
Cost is only one consideration in choosing a fund.
Index funds are professionally managed.
Index funds are still a small portion of stock and bond markets
Index funds have plenty of room to grow. They represent just 10% of global stocks and bonds and about a third of managed assets overall.
How to invest in index funds
The two most common types of index funds are exchange traded funds (ETFs) and index mutual funds. While they’re similar in many ways, there are a few key differences to consider.