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Index funds are mutual funds or exchange-traded funds (ETFs) that aim to replicate the performance of a specific market index, such as the S&P 500 or the NASDAQ. Rather than trying to outperform the market, index funds are passively managed, meaning they hold the same securities as the underlying index. Index funds are popular for their low costs, diversification, and ability to match market returns. They are commonly used by long-term investors looking for consistent, low-cost exposure to a broad range of assets.
An S&P 500 index fund invests in all the companies listed in the S&P 500, aiming to match the performance of the index and providing investors with broad market exposure.
• Replicate the performance of a specific market index.
• Passively managed, holding the same securities as the index.
• Popular for low costs, diversification, and consistent market returns.
Index funds are popular because of their low costs, broad diversification, and ability to match the returns of major market indices.
Index funds passively track an index, while actively managed funds rely on portfolio managers to pick stocks in an attempt to outperform the market.
Index funds are subject to market risk, meaning they will lose value during market downturns, as they mirror the performance of the entire index.
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