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A type of mutual fund or ETF designed to track the performance of a specific market index by holding all or a representative sample of its constituent securities.
Index funds provide broad market exposure at very low cost. The first index fund, created by Vanguard founder John Bogle in 1976, tracked the S&P 500. Today, index funds are the dominant form of investing, with over $10 trillion in assets. Their key advantages include low expense ratios (often under 0.05%), broad diversification, tax efficiency (lower turnover means fewer capital gains distributions), and consistent market-matching performance. Over 15-year periods, roughly 90% of actively managed funds fail to beat their benchmark index after fees, making index funds the preferred choice for most individual investors.