index investing

Index investing, also called indexing, is a method of passive investing whereby a fund (or individual) buys the same stocks in the same proportions as in a target index. The objective of this method is to buy and hold the index. Some advocates of index investing believe the idea is that technical analysis and fundamental analysis are flawed because they require the evaluation of the past performance of securities in order to predict future returns of the securities. Others, while agreeing that technical or fundanetal analysis can be used well, nevertheless note that the vast majority of mutual funds only perform equal to the market, and after the fees are paid for the managers, they underperform the market. The return achieved by indexing is the return of the index. If the index tracks a market sector, then the return is that of the sector. If the index tracks the market as a whole, then the return is that of the market. Practitioners of indexing make a conscious decision not to try to outperform the market, rather they decide to obtain the market return.

Index Investing

See also