Index funds & ETFs
Most professional stock pickers fail to beat a simple, boring index fund. Boring wins.
What's an index?
An index is a list that tracks part of the market. The S&P 500 tracks 500 of the biggest US companies.
An index fund simply buys everything on the list — no guessing which company will win.
Why fees matter
Funds charge a yearly fee called an expense ratio. Index funds are often 0.03–0.10%. Actively managed funds can charge 0.5–1% or more.
That gap looks tiny but can cost tens of thousands of dollars over a lifetime.
Index fund vs. ETF
Many index funds come as ETFs, which trade like a stock during the day. The idea is the same: cheap, broad, and simple.
Real example
The fee difference
Two people invest $10,000 for 40 years at 7%. One pays a 0.05% fee, the other 1%.
- Low-fee fund (0.05%)
- ≈ $147,000
- High-fee fund (1%)
- ≈ $103,000
- Lost to fees
- ≈ $44,000
- Extra work required
- None
Remember this
- An index fund buys the whole list, not a few picks.
- Low expense ratios save you serious money.
- Simple and cheap usually beats clever and pricey.
Quick quiz
Did it click?
An S&P 500 index fund owns…
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