MEPX
Chapter 8 of 12All chapters
  1. 1What a share is
  2. 2Exchanges and brokers
  3. 3How a price is set
  4. 4Order types
  5. 5What it costs
  6. 6Reading a company
  7. 7Dividends and returns
  8. 8Indexes and funds
  9. 9Risk and diversification
  10. 10Market cycles
  11. 11Psychology and mistakes
  12. 12Learning further

Chapter 8 of 12

Indexes and funds

Buying the market instead of picking.

What an index is

An index is a measured basket of companies, such as the largest 500 in a market. It is a yardstick rather than something you can own directly.

  • An index fund holds the basket, so it tracks the yardstick minus its fee.
  • An ETF is a fund that trades on an exchange like a share.

Active and passive

Active funds pick holdings and charge more for the attempt. Most fail to beat their index over long periods after fees, which is the single most repeated finding in the research.