Before you buy an index fund, it is important to understand the definition of an index fund, the passive versus active management debate, and the difference between ETFs and mutual funds.
What Is an Index Fund?
You may have heard that you should buy an index fund because it is the best fund to buy. Maybe you have heard it is the cheapest investment alternative, or the best performing type of fund. Before you make a decision to buy an index fund, understand the definition of an index fund. I have included links to several articles that are useful primers to the world of index funds.
Before You Buy an Index Fund Understand Fund Structures
Many investors have heard of index funds, but do they know if index funds are mutual funds, UITs, closed-end funds, or all of the above? The truth is that that any one of the structures can be used to track an index. It is important to understand these investment structures before you buy an index fund. Each structure has advantages and disadvantages.
Active vs. Passive Management
Before you buy an index fund, learn more about the hotly debated active management versus passive management topic.