What exactly is an Index fund?

I am 19 years old and looking to invest some of my income into stocks and/or a roth IRA. Can you guys explain what an index fund is? From my knowledge it is when a mutual fund disperses your investment into several companies, but I'm not sure. So what is an index fund, where do I find one. Do sites like E Trade and Scottrade have them? And any more advice would be appreciated!!

An Index fund is a fund that tracks one of the major stock indexes. the most popular index to track is the Standard and Poors 500, the 500 biggest companies on the NYSE. Other indexes are the Dow Industrial, 30 companies, and the Russel 5000 which tracks 5000 companies. These indexes move very much in tandem.

Index funds are tax efficient because the only time they buy or sell is when companies are added and removed from the index, so there is not capital gains to be paid ever year as with many mutual funds. If you are in an IRA tax efficiency isn't an issue.

I would suggest either Vanguard or T. Rowe Price they have no commission and very low annual expenses.

An Index Fund is sort of like a mutual fund with its focus on companies stocks for a specific sector or industry.

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Thanks for asking your Q! I enjoyed answering it!

VTY,
Ron Berue
Yes, that is my real last name!

It is a mutual fund. There are over 550 different ones you can choose from. Some are sold like stocks. Any of those can be bought from E trade or Scottrade or any other broker.

What separates an index fund from a classic mutual fund is that they are psudo managed. By that I mean that the manager does not decide what to buy and sell in the fund. Instead it is based on an index such as the S&P 500 or some other index and the folks that make up the index are the ones that determine which stocks are bought and sold. Generally, and index fund since it is not managed has lower expenses than a managed fund sometime significantly lower which tends to make it attractive and also eliminates the possibility of having a poor manager picking lousy stocks. It also has one other significant advantage but which will mean nothing in an IRA account. Since it is only marginally managed, there will be very little if any year end realized captial gains to have to pay taxes on.

Here is a link to most of the index funds that are traded like stocks.

http://www.etfconnect.com/select/rank/de...