What Types of Index Funds Are Out There?

Just as there are several indices that track stock market activity, several varieties of index funds exist. You can buy shares of index funds that only invest in the 30 stocks of the Dow Jones Industrial Average, but while these companies are some of the biggest and most reliable blue chips in the world, a portfolio with only 30 stocks in it isn’t going to provide you with true diversification in case huge companies fall out of favor. Instead, most investors gravitate toward S&P 500 index funds, which include 500 stocks ranging from the global giants to somewhat smaller or more specialized companies. Some of the lowestpriced mutual funds in the market are S&P 500 index funds. If you’d like even better diversification, you can buy into index funds that invest in broader slices of the stock market, including a greater number of smaller companies in their portfolios. Some index funds reflect the Nasdaq Composite, while others track the Russell 3000 index and still others broaden their horizons to the entire Dow Wilshire 5000 equity index, which invests in practically every major publicly traded U.S. stock.