Understanding Index Funds

What is the primary purpose of an index fund?

• To outperform the market

• To provide high-risk, high-reward opportunities

• To invest in real estate

• To track a specific set of investments

Why are index funds considered cost-effective?

• They guarantee high returns

• They are passively managed with lower expense ratios

• They have high management fees

• They require frequent trading

What is the investment strategy often associated with index funds?

• Day trading

• Buy and hold

• Short selling

• Market timing

How do index funds help in diversification?

• By investing only in international markets

• By investing in a single asset

• By focusing on one industry

• By buying a small piece of many different assets

What should you consider when choosing an index fund?

• The fund manager's popularity

• Your investment goals and risk tolerance

• The number of advertisements for the fund

• The fund's past performance