What is an index fund, and how does it work?

An index fund is a mutual fund that tracks or matches the performance of a specific market index. It's simple to use, and you may build a diversified portfolio with mostly this sort of investment and still obtain decent returns.

That's because index funds don't aim to outperform the market or achieve greater returns than the market average. Instead, these investments seek to be the market by investing in stocks of every company included in an index to match the overall index's performance.

ETFs can help investors manage risk in a portfolio by providing a more stable market environment than individual stocks. An index fund, for example, maybe preferable to a stock mutual fund because market movements are less volatile across an index.