| Index fund are a market basket of funds. The Index 500 fund is stock in the 500 largest companies in the US. It's intent is to give you the average across all those companies. Lets look another way. If you are a golfer, the "average" score for a golf round is called PAR. Ask the regular golfer what would they do to be able to play par rounds all the time, most would sell you a beloved grand parent. The index funds are a way to play / invest in the market and get "average" returns. The leverage that Vanguard has is that these index funds are pretty easy to manage, so they don't charge a lot of fees. Presently on the Index 500 fund, it's 17 basis points. So not much of your capital or your profit is going back to Vanguard. On the other side the big investment places are taking fees anywhere from 2 to 10 times what Vanguard gets. That can make a big difference in your annual rate of return. Vanguard also has the advantage that in some cases Fund XYZ will be selling a stock while Fund ABC is buying a stock. So it ends up being an in-house purchase, so there is no brokerage fee, lower cost to both funds. Mutual funds, and specifically index based mutual funds are a good way to get average results across a long period of time. Sure run wild some with that Gold Fund investment and those Oil funds, but be prepared for the downside) (disclaimer: Long time Vanguard customer) |