◈ GLOSSARY · INVESTING
Index Fund.
A definition, in plain English — with the books that teach it.
Reviewed by ClearValue Editorial Team · Jun 27, 2026
◈ DEFINITION
What it means
Definition
An index fund is a mutual fund or ETF that holds every stock in a benchmark — like the S&P 500 — in roughly the same weights, instead of trying to beat the market by picking winners. Because there's no active stock-picker to pay, expense ratios are tiny. Most professional managers fail to beat the index over 10+ years, which is why index funds have become the default for most long-term investors.
◈ IN PRACTICE
Example
A total-market index fund with a 0.03% expense ratio costs you $3 a year on every $10,000 invested. An actively managed fund charging 1% costs $100 on the same balance — and historically, more than 80% of active funds underperform their index over 15 years.
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