Index fund

An investment fund designed to track the performance of a market index by holding its constituents or using other replication methods. It typically follows a rules-based strategy rather than selecting securities through active management.

Market index: A statistical measure that tracks the value or performance of a selected group of securities. The fund’s holdings and performance are organized around this benchmark.
Exchange-traded fund: An investment fund whose shares trade on an exchange throughout the trading day. Many index funds use this structure, combining index exposure with intraday trading.
Active management: An investment approach in which managers select or trade securities to outperform a benchmark or meet other objectives. It contrasts with following an index’s rules rather than making discretionary security selections.
Diversification: The practice of spreading investments across assets to reduce exposure to any single holding or risk. Broad index funds can diversify exposure across many securities through one investment.
Index replication: The methods a fund uses to reproduce an index’s returns through securities or derivatives. Full replication, sampling, and synthetic exposure are the main ways funds track benchmarks.
Index mutual fund: A mutual fund that seeks to match the performance of a market index. This fund structure offers index tracking through purchases and redemptions priced once daily.
Passive management: An investment strategy that follows predetermined rules instead of relying on frequent discretionary security selection. Index funds are a prominent form of passive management, though the terms are not identical.
John Bogle: An American investor who founded Vanguard and helped popularize low-cost index mutual funds. His promotion of inexpensive index funds helped bring the strategy to individual investors.
Portfolio rebalancing: The process of adjusting portfolio holdings to restore target weights or meet investment rules. Rebalancing helps the fund reflect changes in index membership and weighting.
Retirement plan: A financial arrangement that helps people save and invest for retirement. Workplace retirement plans commonly offer index funds as investment options.

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