What are index funds?
Watch our video to learn what index funds are and the benefits they offer investors, including diversification, low costs and choice.
The world of investing can seem big and complex, but index funds make it a lot simpler.
They are a way to get access to a whole market in a single investment.
Vanguard launched the first index fund for individual investors back in 1976. An index fund is a type of investment which closely mirrors, or tracks, the performance of a specific index, like the S&P 500 or the FTSE 100.
To do this, the fund invests in the companies that make up the index. They might invest in all of those companies or in a smaller group that represents the whole list.
When the index goes up or down, the funds that track it will be expected to move by the same amount, give or take a few fractions of a percent.
Index funds have several benefits.
First, index funds can spread your money across hundreds, if not thousands, of different types of companies in one investment. Some funds will also spread your money across different parts of the world. It’s a simple way to help spread your investment risk, although remember that investments can go down as well as up and you could get back less than you put in.
Index funds are also low-cost. The fund managers don’t need to spend a lot of time picking individual companies – they just need to make sure their fund tracks the index. This means they tend to charge lower fees.
Finally, there are lots of different index funds to choose from, covering different types of investments and different parts of the world, so you can find the ones that fit your needs.
It’s important to know that index funds can’t do better than the index they track – they can only achieve the same returns. If you want to try to do better than the index, you might want to look at active funds, where the managers try to beat the market.
Before you make any investments, whether in index funds, active funds or something else, make sure you understand what the fund invests in and the risks it takes.
At Vanguard, we offer a range of index and active funds designed for a wide range of investor needs. You can learn more about our funds on our website.
Investment risk information
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
Important information
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