How do index funds work?

When you invest in index funds, you're buying shares in all the companies that make up the index. Most index funds are weighted by market capitalization — the total dollar market value of a company's shares. That means that these funds usually purchase more of the largest companies in the index than of the smallest companies.

Are index funds cheaper than actively managed funds?

While index funds are usually cheaper than actively managed funds, some are cheaper than others. What Are the Drawbacks of Index Funds? No investment is ideal, and that includes index funds. One drawback lies in their very nature: A portfolio that rises with its index falls with its index.

How do I know if my index fund is a good investment?

Your index fund should mirror the performance of the underlying index. To check, look at the index fund’s returns on the mutual fund quote page. It shows the index fund’s returns during several time periods, compared with the performance of the benchmark index. Don’t panic if the returns aren’t identical.

What is index investing?

Index investing is a passive investment technique that attempts to generate returns similar to a broad market index.