How to Master Index Investing

Index investing allows market participants to use baskets of stocks and bonds to build the best portfolio to meet their goals. Here's how it works.

Baskets of brown eggs
(Image credit: Getty Images)

Why struggle to find a needle in a haystack when you can buy the haystack? That was Vanguard founder Jack Bogle's argument for indexing nearly half a century ago when he launched the first index fund for individual investors. The investment approach was easy to execute and offered instant diversification, all for a low fee. And as it turns out, returns have been tough to beat.

Index mutual funds and exchange-traded funds (ETFs) have done better, on average, than most actively managed funds for years. The Vanguard 500 Index Fund (VOO), which mirrors the S&P 500 Index, has outpaced 76% of all active large-company U.S. stock funds over the past 15 years. (Returns and other data are through August 31; funds we recommend are in bold.) 

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Nellie S. Huang
Senior Associate Editor, Kiplinger's Personal Finance

Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.