# Index Fund

An index fund is a type of mutual fund or ETF designed to track the performance of a specific market index, like the S&P 500. Instead of picking individual stocks, it holds all (or a representative sample of) the securities in that index.

## Why it matters

Over any 15-year period, roughly 90% of actively managed funds underperform their benchmark index. Index funds offer broad diversification, ultra-low fees, and market-matching returns — a combination that has made them the default recommendation from Warren Buffett to most financial advisors.

Example

A total U.S. stock market index fund with a 0.03% expense ratio gives you exposure to over 3,600 companies for $3/year per $10,000 invested.

## How Ray helps

Ray can identify index funds in your portfolio and compare their performance against your other holdings. Ask to see your passive vs. active investment split.

Terminal

```
$ ray "what percentage of my investments are in index funds?"
```

## Related terms

- [Expense Ratio](/content/learn/expense-ratio/index.html): An expense ratio is the annual fee a fund charges its shareholders, expressed as a percentage of assets.
- [Mutual Fund](/content/learn/mutual-fund/index.html): A mutual fund pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities.
- [Diversification](/content/learn/diversification/index.html): Diversification means spreading investments across different asset classes, sectors, and geographies to reduce the impact of any single investment's poor performance on your overall portfolio.
- [Asset Allocation](/content/learn/asset-allocation/index.html): Asset allocation is how you divide your investment portfolio among different asset classes — stocks, bonds, real estate, and cash.
- [Dollar-Cost Averaging](/content/learn/dollar-cost-averaging/index.html): Dollar-cost averaging (DCA) is investing a fixed amount at regular intervals regardless of market conditions.