+ Someone in a comment asked for an overview of Index Funds. Here’s a very good, straightforward, and simple one: Why Does Everyone Preach About Index Funds? What They Are And Why They’re Good – From The Very Beginning.
The natural state for a business is to increase in value, and thus for its stock to go up. Now, let’s say you have the money to invest in the stock of one company. A lot of people invest this way by choosing individual stocks to invest in. That one company might be a really good one and skyrocket. It might also just be an average company and just do average. It might also be another Enron and just completely fall apart. Obviously, you want that high-riser, but what you really want is to avoid that Enron. If the stock you happened to buy is another Enron, your money is gone. This is a very big risk with individual stock investing – if you buy a lemon, your money goes poof. …
An index fund is exactly what I described above: they define some rule or set of rules, then just buy the stocks that follow that rule. Because it’s so easy to do this, the companies that run index funds generally don’t charge very much in fees for doing this for you. It’s popular because it’s very easy and it works.
For further / deeper reading, there’s some interesting info here in Q&A form (“Will the popularity of index funds cause a pricing bubble in the stocks that make up an index?”) on Stack Exchange.
+ Men might not buy tampons, but they sure will sell them.