What is an index fund?

An index fund is best defined as a mutual fund that replicates a market index. This means that the fund is designed to track the performance of a specific index, such as the S&P 500 or the Dow Jones Industrial Average. By investing in an index fund, individuals can gain exposure to a broad market segment with lower fees and expenses compared to actively managed funds. The strategy behind index funds is based on the belief that, over the long term, a diversified portfolio will perform similarly to the overall market.

Index funds are typically passively managed, meaning that they do not attempt to outperform the market but instead aim to match its performance. This approach leads to lower management costs and often results in better long-term returns for investors when considering the fees associated with actively managed funds.

The other options represent concepts that are not aligned with the definition of an index fund. For instance, a type of bank account is not related to investment strategies. Similarly, a high-risk investment strategy does not fit the typically conservative nature of index funds, which appeal to those looking for a stable, long-term investment. Lastly, the notion that index funds are exclusive only to wealthy individuals is incorrect, as index funds are accessible to all types of investors, often with low minimum