What is an index fund?

Index fund is an ETF or mutual fund that invests in U.S. or international bond or stock markets at the broadest level.

“Total bond” funds invest in a combination of short-, intermediate-, and long-term bonds with varying degrees of credit quality and risk.

“Total stock” funds invest in a combination of small, mid-size, and large companies with varying degrees of value (meaning they focus on paying dividends) and growth (meaning they focus on increasing the price of their stock).

They typically do this by following an indexing strategy—choosing a broad market index that tracks the entire bond or stock market and investing in all or a representative sample of the bonds or stocks in that index.That is what index fund is.


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