What does it mean when people say that “the market turned in a great performance today?” What is “the market”? When most people talk about “the market,” they are actually referring to an index. An index is a statistical measure of the changes in a portfolio of stocks representing a portion of the overall market. It would be too difficult to track every single security trading in the country. To get around this, we take a smaller sample of the market that is representative of the whole. Trading major market indices has been a popular way of investing for nearly a century, but it hasn’t always been available for individual traders.
- Lower management expense ratios, which are typically one-half to two-thirds less than actively managed fund fees
- Simply the fact that index funds have historically outperformed the majority of actively managed funds.
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