Index Investing


DEFINITION of 'Index Investing'

A form of passive investing that aims to generate the same rate of return as an underlying market index. Investors that use index investing seek to replicate the performance of a specific index – generally an equity or fixed-income index – by investing in an investment vehicle such as index funds or exchange-traded funds that closely track the performance of these indexes.

BREAKING DOWN 'Index Investing'

Proponents of index investing eschew active investment management because they believe that it is impossible to "beat the market" once trading costs and taxes are taken into account. As index investing is relatively passive, index funds usually have lower management fees and expenses than actively managed funds. Lower trading activity may also result in more favorable taxation for index funds as compared with actively managed funds.

  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Indexing

    1. The adjustment of the weights of assets in an investment portfolio ...
  3. Closet Indexing

    A portfolio strategy used by some portfolio managers to achieve ...
  4. Active Management

    The use of a human element, such as a single manager, co-managers ...
  5. Index Fund

    An index fund is a type of mutual fund with a portfolio constructed ...
  6. Passive Income

    Earnings an individual derives from a rental property, limited ...
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