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Glossary
Instruments

Index fund

A fund that simply buys everything in an index, and does not try to be clever.

Rather than paying someone to pick winners, an index fund owns the whole market in proportion. It guarantees you the market return, minus a very small fee.

The uncomfortable evidence is that this beats the large majority of professional active managers over long periods, principally because their fees and trading costs are a bigger, more certain drag than their skill is an advantage.

Figure

What keeps an ETF honest

ETF priceSet by the marketThe shares it holdsNet asset valueredeem units, get sharesdeliver shares, create unitsAny gap between the two is free money, so it does not last.

Not virtue, arbitrage. If the wrapper drifts from the contents, an institution swaps one for the other and pockets the gap, which closes the gap.

Why it matters

It is the benchmark every active strategy, including your own, must beat to be worth the effort.

The mistake everyone makes

Thinking it is a compromise. Over twenty years it is a high bar that most professionals fail to clear.

Related terms

ETF
A basket of assets you can buy as a single share.
Expense ratio
The annual fee a fund charges, as a percentage of your money.
Efficient market hypothesis
The claim that prices already reflect everything that is known.

See Index fund on a real company

SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.

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