Adam J. has the best answer. To add to this, an index fund mirrors all the funds that the index tracks. So, if the fund tracks the S&P 500 index, a major index, it invests in those funds that are part of that index and gives you instant diversification among many stocks. A very good thing, unless you want to spend all the time and effort to pick individual stocks, and most people don't. A good index fund is the way to go as a start. Good luck!
2007-03-07 13:09:17
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answer #1
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answered by philsky 2
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You can't actually buy an index. I assume you mean buying an "index fund" or an "index ETF". The main reason to do that in my mind is because it allows you to buy a little bit of many stocks in one transaction, which means you can diversify your investment (which is a very good thing) easily.
Many mutual fund companies have "index funds" that invest in all the stocks in a particular index (e.g. the S&P 500 or Russell 2000). There are also "exchange-traded funds" which are similar to mutual funds, but trade on the stock market like a regular stock. Some examples are ticker symbols SPY (which mirrors the S&P 500), DIA (which mirrors the Dow Industrials), and RUT (which mirrors the Russell 2000).
2007-03-07 12:20:25
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answer #2
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answered by Dave W 6
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You basically by an index fund to gain exposure to a particular market without buying individual stocks. Mutual funds like Fidelity Spartan US equity and Vanguard S&P, or ETF's like the SPY track the S&P 500. They basically go up and down with the total market. They are an inexpensive way to invest in the total market. If you don't have time or the knowledge to invest in individual stocks but still want to invest, they are the way to go.
2007-03-07 12:43:50
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answer #3
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answered by Chris W. 3
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1) It saves you the trouble of picking individual stocks.
2) It eliminates the risk of picking individual stocks.
3) Indexing tends to be cheaper than paying someone else to pick stocks for you.
4) Most professional money managers don't do any better than the market over the long haul.
2007-03-07 12:48:49
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answer #4
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answered by Adam J 6
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When you bet on a stock you bet only on that particular stock whereas betting on an index you are betting on the direction of the market.
2007-03-09 04:37:28
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answer #5
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answered by Mathew C 5
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