Most recently, millions of Americans have invested in stock index mutual funds. The fund's performance is tied to how the index performs. Managed funds have higher costs because fund managers actively buy and sell stocks and are compensated for their decision making. These annual expenses are figured into results. Index funds, on the other hand, spend less.
Lower expenses mean more money for the shareholders.
The answer is no, for a few reasons. Some investors believe index funds are a safer option because, while they do no better than the market average, they also guarantee that they will do no worse. An index fund falls with the market, perhaps even more so. It accounts for 68 percent of the overall U.S. market capitalization, but it contains less than five percent of the actual number of stocks listed on the various U.S. stock exchanges. In other words, rather than being diversified, your savings are tied to the fortunes of a handful of huge companies.