Index FundsIndex Funds or Index Trackers are used to represent the market average. Most mutual funds cant beat the market Which makes these funds possible the best type of mutual funds. These funds work on the same bases as the efficient market hypothesis, which says that you cant beat the average return on the market because everything is already priced into a stock.
Investors who believe in the efficient market hypothesis can decide to buy one of these funds and be happy to receive an average return. And average is pretty good when you compare it to other mutual funds. The average mutual fund return is about 2% lower than the market average. Also the SPY which tracks the S&P outperforms 90% of mutual funds in the long term. Numbers like that make owning an index fund a good idea. You can use these funds in 2 ways. You can choose to put your whole retirement accounts into an index fund or you can choose to put a portion of your account into one and put the rest in other riskier investments. Either way it is a good idea to have at least some sort of index to help you get a safer return. History John Boogle graduated from Princeton University in 1951. He later got inspiration for creating an index fund by 3 papers Paul Samuelson's 1974 paper, "Challenge to Judgment", Charles Ellis' 1975 study, "The Loser's Game," and Al Ehrbar's 1975 Fortune magazine article on indexing. Boogle created the Vanguard group which became the 2nd largest mutual fund in America. The group created the first index fund, the Vanguard 500 index fund in 1975. Most people believed that the idea would not catch on. After all who gets excited about getting an average return?But the idea did catch on and today there are many different funds available to choose from.
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