Glossary
Index fund
A fund that mechanically holds every company in a market index.
Index fund: what it means in practice
Rather than paying someone to pick winners, an index fund buys the whole market at very low cost. Over long periods the large majority of active managers underperform the index they are measured against, after fees.
The unglamorous consequence: for most people, most of the time, a low-cost global index fund is the correct default, and any deviation from it needs to justify itself.
Fees are the one variable you control with certainty, and they compound like everything else. $200,000 over twenty-five years at 7% before costs is roughly $1,060,000 at a 0.1% charge and $858,000 at 1% - a little over $200,000 for holding the same companies in the same proportions. No fund manager needs to underperform for that gap to appear; it is arithmetic.
Four things to check before buying one: the total expense ratio, the index it actually tracks and how broad that index is, whether it accumulates dividends or pays them out, and what your platform charges on top. Two funds tracking the same index are the same product, so once the index is chosen the decision is purely about cost.