Investing in an index fund is a form of passive investing. The primary advantage to such a strategy is the lower management expense ratio. A majority of mutual funds fail to beat broad indexes, such as the S&P 500, partly because of their expense ratios. For the five-year period ending in 2015, 84% of large-cap funds generated a return less than the S&P 500. In the 10-year period ending in 2015, 82% of large-cap funds failed to beat the index. [1]

Since the fund managers of an index fund are simply replicating the performance of a benchmark index, they do not need the services of research analysts and others that assist in the stock selection process. The extra costs of fund management are reflected in the fund's expense ratio, and are passed on to the fund’s shareholders.

Index funds are generally considered ideal core portfolio holdings for retirement accounts, such as individual retirement accounts (IRAs) and 401(k) accounts.

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