Millionaire Librarian

An index is a list. An index fund is a list of companies that the fund buys blindly. Index funds are the easiest and best investment for several reasons.

First, index funds are extremely low cost. An index fund may have an expense ratio as low as .03%. Some Fidelity funds are free. Unlike most things you buy, most funds take a percentage of the total amount you invest in the fund. For example, someone who cleans your house isn’t paid a percentage of the cost of your house, but in the financial world this is how you pay for your funds. Also because expenses compound negatively they can greatly influence your returns, especially, over a long period of time.

Index funds trade less often the funds that are actively managed. This means they are taxed less which is another way they save you money.

Index funds are an extremely diversified product. There is a saying in the financial world the only free lunch in investing is diversification. With an index fund if Apple is wiped off the world with a meteor, then your returns will be effected but another company will take its place.

Broad U.S. total market based index funds are generally what I recommend.

However not all index funds from all companies are created equal. I recommend index funds from Fidelity, Charles Schwab, and Vanguard. All three are discount brokerages with extremely cheap products.