[cmorus]

An Index fund is just a mutual fund that owns all the stocks in a particular index like the S&P, NASDAQ or Russell 2000. It's different than other mutual funds which are "actively managed" which means that there are employees who study different companies and decide which stocks they want to buy or sell and how much of each.

With an index fund, there's no management and hardly any trading because it mirrors the index. This means that the costs should be lower and the capital gains (and therefor your taxes), too.

Another type of "Index" to consider are Exchange Traded Funds. They are similar to Index Funds in that they mirror some index or other group. They trade like stocks so you can put stop/loss orders etc. on them. You always know what they trade at, too because you can look it up just like a stock. They aren't very good for small, regular investments though because each transaction will cost you.

The other great thing about ETFs is that there are a lot of them. For example, Emerging Nations, BioTech, Consumer, Small Cap, Large Cap, Value, etc as well as the S&P or NASDAQ etc.

I have a Biotech one for example, because I feel sure that there will be a lot of wonderful new medical products coming out in the next 20 years, but I haven't a clue which company will be successful.

Having an ETF or Index fund allows me to participate without as much risk. Of course, I don't have the possibility for some really blow out gains like I would if I owned a particular stock that did incredibly well. That's OK with me, I'd rather be a tortoise than a hare!

Cindy Morus