An index fund is a financial instrument that provides exceptional diversity at low cost. It is traded like a stock, except when you buy a stock you purchase shares in one company. When you buy an index fund, you buy all the companies in the index it tracks, all at once, in one simple transaction. So instead of buying a company you buy the entire market, and your financial returns replicate closely those of the market the index tracks. Index funds don’t try to beat the market – they try to be the market: buying stocks of every fund on an index and mirroring the index as a whole.
Based on research from Paul Samuelson at MIT and others, index funds were introduced to the public by John Bogle, the founder of Vanguard, who wrote his senior thesis at Princeton in 1951 on them.
Index funds are simple to understand, have low fees, lower taxes, and distribute a small tax burden. Lower costs contribute to long-term wealth. By focusing on that which is controllable, costs and asset allocation, One Day In July financial advisors aim to generate excellent returns while managing risk.
“Don't look for the needle in the haystack. Just buy the haystack.” ~ John Bogle
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