Index funds are mutual funds designed to track a specific index (the S&P 500 or the Barclay’s Capital Aggregate Bond Index, for instance). This is in contrast to most mutual funds, which are run by fund managers seeking to beat the market rather than just match it.
Because index funds seek only to mimic the performance of an index, they can be run for significantly lower costs than other, actively managed mutual funds. For example, the typical stock mutual fund carries an expense ratio of roughly 1%, whereas it’s easy to find stock index funds charging 0.2% or less.
Reasons for Investing in Index Funds
Because of their low costs, transparency, and broad diversification, index funds can be excellent tools for constructing a buy & hold portfolio.
The following articles explain in more depth exactly why more and more investors are turning to index funds to make up the majority of their portfolios:
- Active vs. Passive Investing: The Results Are In
- Advantages of Investing in Index Funds
- Manager Risk? No Thanks.
- Psychological Benefits of Index Funds
Exchange Traded Funds (ETFs)
ETFs are essentially index funds that are bought and sold like regular stocks rather than like mutual funds. For buy and hold investors, the biggest differences between ETFs and index funds are that ETFs typically carry slightly lower expense ratios, but buying or selling them (usually) involves paying a brokerage commission.
The following articles can help you get up to speed on ETFs in case you think they might be a helpful tool for building your portfolio:
- Comparing Expenses: ETFs vs. Index Funds
- Index Funds and ETFs: Get the Ticker Right
- How to Choose ETFs for Your Portfolio
- The Best (Lowest-Cost) ETFs to Buy and Hold
Example Index Fund/ETF Portfolios
The following articles contain example portfolios (constructed from index funds or ETFs) that may be helpful as a starting point as you build your own portfolio:
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Hi. I'm Mike Piper, the author of this blog. I'm 
