What’s an Index Fund?

If you’re just getting into investing, you’ve probably heard the term “index fund” thrown around a lot. But what exactly is it—and why do so many people recommend it?

Let’s break it down simply.

The Short Answer

An index fund is a type of investment that gives you instant ownership of hundreds or even thousands of companies, all in one single purchase. Instead of trying to pick individual stocks (like Apple or Google), an index fund tracks the performance of an entire group—or index—of stocks.

Think of it like buying a slice of the whole market.

What Index Does It Follow?

Each index fund is designed to mirror a specific market index. Some common examples:

  • S&P 500 – tracks 500 of the biggest U.S. companies
  • Total Stock Market Index – includes almost every publicly traded U.S. company
  • Nasdaq-100 – focuses on major tech companies

If the index goes up, your investment goes up. If it goes down, your investment drops too. You’re not trying to beat the market—you’re just riding with it.

Why People Love Index Funds

Here’s why index funds are a favorite for beginners and pros alike:

  • ✅ Diversification – Your money is spread across many companies, not just one
  • ✅ Low fees – They’re cheaper than actively managed funds
  • ✅ Proven performance – Historically, the U.S. stock market has returned ~10% per year over the long term
  • ✅ No guesswork – You don’t have to pick winners; you own them all

How to Buy One

You can buy an index fund in just a few minutes through any major brokerage:

  • Schwab Total Stock Market Index (SWTSX)
  • Vanguard Total Stock Market ETF (VTI)
  • Fidelity ZERO Total Market Index (FZROX)

Just open an account, search for the fund symbol, and invest however much you’re comfortable with—even $100 is a great start.

Bottom Line

If you’re new to investing and want a simple, low-stress way to grow your money, an index fund is a great place to start. It’s one of the few things in investing that’s both easy and effective.

Want to learn exactly how to buy one? Check out my beginner’s guide to investing your first $100

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