An index is something like S&P 500 - a (weighted) collection of different stock. Instead of buying a single stock, you could replicate this index, by splitting your money across all of its stocks. That way your risk is somewhat reduced, as the failure of a single company will not wipe out your entire investment. But that would be a lot of effort, as you’d constantly have to buy and sell stocks to match the index. For that, there are index funds. These are just big funds with a lot of money, which they spread over many stocks to replicate an index. You, in turn, can then buy shares of that index fund. These are typically traded at an exchange as well, hence the name exchange traded fund (ETF). Investing in the right ETF allows you to invest into the economy as a whole, and reduces risk from individual stocks.
What are index funds
An index is something like S&P 500 - a (weighted) collection of different stock. Instead of buying a single stock, you could replicate this index, by splitting your money across all of its stocks. That way your risk is somewhat reduced, as the failure of a single company will not wipe out your entire investment. But that would be a lot of effort, as you’d constantly have to buy and sell stocks to match the index. For that, there are index funds. These are just big funds with a lot of money, which they spread over many stocks to replicate an index. You, in turn, can then buy shares of that index fund. These are typically traded at an exchange as well, hence the name exchange traded fund (ETF). Investing in the right ETF allows you to invest into the economy as a whole, and reduces risk from individual stocks.
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