Index funds?

Discussion in 'Stock Market Education' started by queenbellevue, Mar 6, 2015.

  1. queenbellevue

    queenbellevue Well-Known Member

    Feb 2015
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    So, I hear a lot of talk, both on this forum and in real life, about index funds. I understand that they basically take a tiny bit from every company out there, so when the economy goes up, the index fund goes up. How does this actually work in real life, and what makes it better/worse than other investments out there?
  2. crimsonghost747

    crimsonghost747 Senior Investor

    Mar 2014
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    They own the same companies with the same weight as the index they are tracking, thus the change in the index fund will be equal to the change in the index being tracked. It works just like any other mutual fund, except that the fund managers don't do their own thing... they just keep the weight of different shares where they should be according to the index.

    Different index funds of course follow different indexes, but in general they are well diversified (there are exceptions) and have low management fees.
  3. JR Ewing

    JR Ewing Super Moderator Staff Member

    Feb 2014
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    These are a good idea if you have a longterm view, are patient, and want to keep fees to a minimum. Particularly if you don't have a huge amount of capital and don't have the time or inclination to dig in and do your own investing or pay someone else to do so - which can be better OR worse than simply tracking a broad index of companies.

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