An index fund is a type of investment designed to match the performance of a market index (for example, the S&P 500) by holding the same stocks in the same proportions. It’s usually managed passively, so fees are typically very low. In practice, you buy shares of an index fund (or an ETF) and your money follows the index’s performance over time. You don’t try to pick winners; you aim for broad exposure and low costs. How to use it: 1) pick an index (e.g., large-cap US stocks, total market, or international). 2) choose a fund with a low expense ratio and a straightforward structure (mutual fund or ETF). 3) decide how much to invest and how often (automatic monthly contributions help). 4) invest for the long term and reinvest dividends; rebalance if your target allocation drifts. Practical example: If you invest $1,000 in an index fund with a 0.05% annual expense ratio and the market earns 7% per year before fees, your net annual return is about 6.95%. After 20 years, that $1,000 could grow to roughly $3,870; after 30 years, roughly $7,500. If the expense ratio were 0.50%, those same calculations give about $3,520 after 20 years and about $6,020 after 30 years—demonstrating how small fee differences compound over time.

An index fund is a type of investment that aims to mirror the performance of a specific market index by holding the same stocks in the same proportions. It is typically passively managed, which keeps costs low and provides broad exposure to a group of securities rather than trying to beat the market through stock picking.