3.1.2.5. Index Funds
Index funds are mutual funds set up to track the returns of a specific market index. An index contains a group of securities meant to represent a particular market segment.
Well-known indexes include:
• S&P 500 (500 large capitalization stocks)
• Wilshire 5000 (total U.S. stock market)
• Russell 2000 (small capitalization stocks)
• MSCI EAFE (foreign stocks)
• Bloomberg Barclays U.S. Aggregate Bond Index (total U.S. bond market)
• Nasdaq Composite (stocks listed on the Nasdaq exchange)
• Dow Jones Industrial Average (30 large-cap, blue-chip stocks)
An index fund will typically hold securities—stocks or bonds—in the same proportion as the index it is tracking. This means the fund’s investment adviser passively selects securities that will mimic the index, instead of actively buying or selling based on some ty