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Who decides what is in a index and how do you know what stocks are part of the index?
What is a stop/loss order?
It sounds like index funds are for people who want to buy stock in a certain area, but don't know enough about individual companies, so they buy a bunch of similar stocks so it isn't so risky. Is this correct?
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I'm not an expert in this area, but I will try and answer your questions the best I can.
1. The idex funds are just groups of stocks that are placed together, usually because they meet a certain criteria. There are some quite famous ones like the S&P 500 (large stocks) and Russel 2000 (small stocks), but anyone can make up an index of stocks.
2. A stop/loss order is when you put a price on a stock so that if it goes down in value to a certain point, it will automatically be sold at the price you determine so that you don't lose even more money.
3. Yes, I think that is basically correct although there are other reasons why people like index funds.