Funds, ETFs & Indexes

A fund lets many investors pool their money into a single portfolio of stocks, bonds or both, and can spread that money across many companies and sectors ^[1]. An index fund adds one rule: instead of trying to beat the market, it tries to track the returns of a market index ^[2]. That simple idea raises the questions this topic answers.

Start with what is a stock index, which explains how the S&P 500, the Dow and the Nasdaq Composite choose and weight their stocks, and why the same move in one company can shift each index by a different amount. Then read index funds explained for how a fund copies an index, why it usually trails it a little and what risks it keeps.

ETFs vs mutual funds covers the two wrappers an index fund can come in: how each is bought, priced, charged and taxed. Expense ratios explained looks at the yearly fee that comes out of every fund, and diversification explained shows what spreading your money does and does not protect against.

Fees deserve the attention. The SEC shows $100,000 growing 4% a year for 20 years ending at approximately $208,000 with a 0.25% annual fee but approximately $179,000 with a 1.00% fee ^[3]. Run your own comparison in the fund fee calculator, or see how regular saving adds up in the compound growth calculator.

Short definitions live in the glossary: sector and blue-chip stock. Worked examples use hypothetical funds calculated in code. Where a page quotes a real fund's prospectus, it is only to show how a definition or fee table reads, never as a recommendation or rating. Every page links each rule and number to a primary source such as the SEC, FINRA or the index provider. Funds can lose money, including index funds ^[2].