An index fund buys a small piece of every company in a market index. Instead of guessing which companies will win, you own them all.
Key takeaways
- Fees are very low because nobody is paid to pick stocks.
- When the whole market falls, so does your fund.
- Many brokers let you start with a small amount and invest automatically every month, which also smooths out the ups and downs.
Why they are popular
Fees are very low because nobody is paid to pick stocks. Over long periods, low-cost index funds beat most actively managed funds.
The risks
When the whole market falls, so does your fund. Index funds are for money you will not need for at least five years.
Getting started
Many brokers let you start with a small amount and invest automatically every month, which also smooths out the ups and downs.
