Index Fund
Definition
A mutual fund or ETF designed to track the performance of a specific market index by holding all (or a representative sample of) its constituents.
Explanation
Index funds were pioneered by John Bogle who launched the first retail index fund (Vanguard 500) in 1976. They have since grown to hold over $15 trillion globally. The investment thesis is simple: if most active managers can't beat the index after fees, investors are better off owning the index at minimal cost. Index funds charge 0.03-0.10% expense ratios versus 0.50-1.50% for active funds. This fee advantage compounds over decades, explaining why index funds outperform most active managers over long periods.