What Is an Index Fund? A Simple Explanation

By Allen Krewzz

Published June 29, 2026Updated July 4, 2026

What Is an Index Fund?

First, what is an index?

How the fund fits in

Active vs Passive: Why "Passive" Matters

Why Index Funds Are So Popular

Low cost

Instant diversification

Simplicity

By design, an index fund matches the market — it will never beat it. For most long-term investors, the low cost, simplicity, and diversification are well worth that trade-off.

A Simple Example

The Drawbacks to Keep in Mind

How to Start

Conclusion