What is an index fund and how does it work? – CBS News

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By Aly Yale
December 26, 2022 / 9:00 AM / CBS News
Handpicking stocks and bonds is one way to invest in the stock market. Index funds, which allow you to invest in a wide array of stocks all at once, are another.
If you’re not well-versed in the market, index funds can be a good way to diversify your portfolio without putting in a lot of effort, capital or research. Still, they’re not right for everyone. Make sure you speak with a financial adviser who can help guide you through the process.
Are you considering investing in an index fund? Here’s what you need to know.
An index fund is a grouping of stocks, bonds or other securities. They’re designed to mirror the performance of a particular market index — like the S&P 500 or the Dow Jones Industrial Average, for example.
When you invest in an index fund, you’re purchasing shares in all or some of the companies within that index. This allows you to spread your investments across many sectors and industries without having to handpick individual stocks or actively manage your portfolio. 
Most index funds are passively managed, which means there’s usually not a fund manager picking or trading stocks within them on a regular basis. They’re also a popular retirement tool, so you’ll often see them as part of your employer-sponsored 401(k) and IRA options. 
Are you sufficiently prepared for retirement? If you’re unsure, then you should consider diversifying your plans. A Roth IRA can be a good place to start. Get started today!   
There are several benefits to investing in an index fund. 
If you’re not sure how to invest your money, consider speaking to a financial adviser or investment professional. They can help you make the right decision for your goals and budget.
However, there are some drawbacks to index funds.
If you’re interested in investing in index funds, there’s a quick and easy way to get started:
If an index fund isn’t right for your investing goals, there are plenty of other ways to grow your wealth in the markets. Mutual funds, for example, are an option. These are actively managed funds that aren’t tied to a specific market but still allow you to invest in a variety of stocks and bonds all at once.
You can also buy individual securities or invest in things like cryptocurrency, real estate or gold. 
First published on December 26, 2022 / 9:00 AM
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