Definition
A fund that passively holds every security in a market index, like the S&P 500 or the total U.S. market, at very low cost. Over long periods, index funds outperform the large majority of actively managed funds.
Why it matters
The index fund turned the market's average return, which beats most professionals after fees, into something anyone can buy in one click. It is the default answer for long-term money for a reason.
Example
A total-market index fund holds thousands of U.S. companies for a 0.03% expense ratio. Its investor captures whatever the market does; most active funds trying to beat that same market trail it over 15-year periods.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.