What is an Index Fund?

Imagine you want to invest your money. One way you could do this is by buying stocks, which are small pieces of a company. If the company does well, the value of your stock goes up, and you can sell it for more money than you bought it for.

But choosing which stocks to buy can be hard. It’s like trying to guess which apple in a basket will be the tastiest just by looking at them.

This is where index funds come in. Instead of trying to pick one or two “best” stocks, an index fund buys a little bit of a lot of different stocks. It’s like if you bought a small slice of every apple in the basket instead of just one or two apples.

In particular, index funds try to buy the same stocks that are in a certain list, called an “index”. The index might include big companies, small companies, or companies from a certain country, depending on what the index is trying to track.

This way, instead of betting on a single company doing well, you’re betting on the whole basket of companies doing well. And because you’re not trying to pick the “best” apples, the fees for index funds are usually lower than for other types of investment funds.

So, an index fund is a way to invest your money in lots of different companies at once, which can be less risky and cheaper than trying to pick individual stocks.