104: Okay, But What Even Is an Index Fund?

Don’t Beat the Market; Be the Market.

You hear about index funds everywhere…on TikTok, from your finance friends, even on our Market MakeHer merch (yes, the “Index Funds and Chill Shirt” is real). But what are they, really? And why do people say we should have them in our portfolio?

In this episode, I asked Jess to break it all down for us, starting with the jargon. We dig into why index funds are the simplest way to invest and why they’re considered the foundation of most long-term portfolios.

Plus, we take a quick trip back to the 1970s for the surprisingly dramatic story of how the first index fund was created and why people once called it “Bogle’s Folly.” Spoiler: it changed everything. Spoiler from the spoiler: markets are constantly innovating and changing. 

If you’ve ever wondered where to start with investing, this one’s for you. By the end, you’ll understand exactly how index funds work and why just “being the market” can sometimes be the smartest move of all.

EducAction To-Do List:

• Check your 401(k) or IRA: Do you already own an index fund? Many retirement plans default to them.
• Compare expense ratios: If you own mutual funds, look up their fees. Are index funds cheaper?
• Think about your goals: Do you want broad exposure (total market) or focused exposure (like a sector)?
• Try dollar-cost averaging: Start small and invest consistently, instead of worrying about timing the market.

If you enjoyed this episode:

• Subscribe to our newsletter.
• Share it with a friend who’s just starting to invest.
• Leave us a review—your feedback helps more people find Market MakeHer.

Transcript

Jess: [00:00:00] All right. Today we're tackling something I've heard everywhere, and I'm sure you have too. Index funds, everyone says you need them in your portfolio. We even have a shirt that says index funds and chill, which yes, I am wearing and repping today, but what even are index funds and are they the same thing as ETFs or something different?

Jessie: such a good question, and honestly, this is one of those finance terms that sounds complicated. I guess everything in finance sounds complicated, but the clue is right there in the name. Like we always say, it's in the name. So today, yes. So today we're breaking down exactly what an index fund is, why people love them, and why they're one of the easiest ways to start investing.

Jess: And I feel like we should even maybe go back to the 1970s for a quick history lesson, uh, because knowing why something exists makes it make sense. And by the end of this episode, I'm gonna bet that we'll all know [00:01:00] exactly how index funds work and why they might be our first step into the market.

Jessie: Cue the music.

Jessie: This is Market MakeHer the Investing Education podcast for all levels of self-directed investors that breaks down how the stock market works from her perspective, 

Jess: That's us. We're her, two women with Outta the Box analogies that make you connect the dots and have light bulb moments. I'm Jess Inskip. I act as your teacher with over 15 years of experience in the self-directed 

investing space, and I was licensed for 10 of those years.

Jessie: And I'm her friend, Jesse Denuit, the beginner investor who is learning alongside you and asking the questions. We're all thinking, and together we're on a mission to make you Fen fluent, not Finn fluent.

Okay, Jess, what's on the agenda for today?

Jess: Alright, Jessie, my dear protege, here is the game plan. First, we'll break down what an index fund actually is by looking at the two words in the name. Break it down, index and fund. Then we'll talk about how they work, active [00:02:00] versus passive investing, why fees matter and what makes index funds so popular.

And after that, we'll take, After that, we'll take a quick trip back in time to the 1970s for the story of how index funds were born. Because you're right, history. History is important. And finally we'll look at how many types of indices exist today. And why starting with something broad like the s and p 500, which is an index, not an index fund, is such a great first step for new investors.

Jessie: I love it, short, simple. And by the end of this episode, we'll make it all make sense. Okay? And I'm gonna be the honest learner here as I am. When I hear index, the English Lit major in me thinks about the back of a book. So tell me, what is Index Fund in invest

Jess: That's actually a really good start because an index is just a list, right? Except in finance, it's a list of stocks that represent a specific part of the market. So, if we think of the s and p 500 [00:03:00] as a list of the 500 biggest publicly traded US companies, or the Dow Jones Industrial Average as a list of just 30 major blue chip names. I know I'm using jargon. There are indexes or indices for everything; tech, stocks, small caps, even clean energy companies. Each one is designed to show how that segment of the market is doing overall. So how are, how is that list of stocks in the index doing?

Jessie: And just for the listeners, index and indices are the same thing. They're interchangeable. So you'll probably hear both of those used when talked about these table of contents of the stock market we could call them. And if you wanna know what's inside the large cap chapter, for example, you check the s and p 500.

Jess: Exactly. So now let's add the second word which is Fund. A Fund is a [00:04:00] big pool of money from lots of investors managed together to buy many investments at once. Like a group gift. Instead of you buying one single company stock, your money gets mixed with everyone else's and invested across all the companies that that fund holds.

Jessie: And we did talk about that in the mutual fund episode, so it's kind of similar. But we're talking about index funds specifically. So if index means the list and fund means pool of money, then an index fund must be a pool of money that buys everything on that list.

Jess: That is exactly it. Yes. It's literally that simple. An index fund is a type of mutual fund or ETF, which is an acronym for exchange traded fund because in finance we love our acronyms and they try to mirror a specific index.

Jessie: Right, because you can't just go buy the s and p 500 index, for example, right.

Jess: [00:05:00] Exactly. You cannot buy it. It's just a measurement of price. It's a math equation. So if the s and p 500 goes up 10% this year and s and p 500 and. Index fund an s and p 500 index fund will go up about 10% to minus a management fee. So it's trying to mirror the performance of said math equation. So you're not trying to beat the market, you're just trying to be the market.

Jessie: Ooh, don't beat the market. Be the market.

Jess: That could be a shirt, right? Yes.

Jessie: Okay. So when I buy one share of an s and p 500. index fund, I basically own a tiny slice of Apple, Microsoft, Amazon, all the 500 companies that are in that index fund without having to buy each one individually. Right?

Jess: Exactly. That's called instant diversification. Buying one share gives you proportional ownership across the entire list of companies that are in that index. It's like a playlist. The index is the playlist, and the fund is your [00:06:00] spotify premium subscription. You're streaming all the songs without picking them one by one, but there is a criteria to be in that playlist that someone is choosing for you that custom playlist.

Jessie: Hmm. Or, uh, like your rose analogy. I liked that one. A rose is a flower, but not all flowers are roses. So an index fund is a fund, but not all funds are index funds.

Jess: Yeah. Yes. I love that analogy because people say, oh, index funds. I'm like, no, that's also could be an ETF or a mutual fund. What do you mean? Tell me more.

Jessie: But an index fund can be an ETF. Right?

Jess: yeah, And it can be a mutual fund. too, There are lots and lots of different types of indices. So there are lots of different index funds, like there are lots of types of flowers, but not all flowers are roses. But every rose is a flower. So if it's an index fund, it is a fund of some sort.

Jessie: And there are different types of roses, just like there's different types of [00:07:00] index funds.

Jess: That's right. your garden that you're growing. We could, we could go deep 

Oh, I like it.

Jessie: I love a good garden analogy.

Jess: Yes. So, some funds are actively managed, though, meaning there's a person or a team picking and choosing what to buy. But an index fund specifically, it simply follows the list automatically. We call that a passive fund that makes it cheaper. So lower expense ratios. Lower premium subscription because you're just mirroring something. It's more transparent and historically very effective for long-term investors.

Jessie: And there might be a lot of terminology in this episode, but we do have so many episodes that you can go back to and learn all of these terms that we're talking about. But if you have questions, please write in and ask.

Okay, let's wrap up this part of the episode. So here's what we've learned so far. An index or indice is a list of stocks that represents a slice of the market. [00:08:00] A fund is a pool of investors' money used to buy a collection of investments, put them together, and an index fund is a fund that buys everything on the list, automatically tracking the performance of that index so you don't have to do anything. You're not stock picking your market. mirroring. And with one share, you own a diversified slice of hundreds of companies. So make that money work for you. Make your money, make money, put it to work.

Jess: It's a good recap. I like it.

Jessie: All right, so let's talk about why people buy index funds instead of just picking individual stocks.

Jess: All right. Well, there are three big reasons, low cost diversification and simplicity. But before we unpack those individually, we need to talk about a major concept in investing that we touched on, active versus passive management. An active fund is one where a manager or whole team tries to beat a [00:09:00] certain benchmark like the s and p 500.

The benchmark is basically the measuring stick they, they are compared against, and their goal is to earn what's called alpha, new term here, which means outperforming that benchmark. For example, if the s and p 500 gained 10% and the fund gains 12%, that's an extra 2% of alpha. And the reason why I wanna bring that up, people will use financial influencers, say fund companies don't beat the market, or things like that, so you should just do it yourself.

Sometimes they don't mean to. And so it's important to know active versus passive, when we are doing passive investing, you're just trying to be the market and mirror it. If you're active, you're either trying to beat the market, but that may not be your benchmark. You might be trying to beat a different benchmark, or you might be trying to have less risk, which means it may not go up as much and may not go down [00:10:00] as much. So, it all depends on your personal investment objective. And now I'm going on too much of a tangent. The point was this is the difference between passive and active. 

Jessie: But wait, are you saying an active fund -is an index fund an active fund?

Jess: No, it is not. Mm-hmm. 

Jessie: it's passive. It's always passive?

Jess: Passive as in like it's, we're mirroring something that is, it's not necessarily in the past, but 

Jessie: is being done for, I mean, there's still probably somewhat managing that index fund because it's, it's put together by someone, but it's not a lot of work because they're just literally mirroring whatever is in the s and p 500 or whatever index that that fund is mirroring.

Jess: That's correct. Yes. 

Jessie: So an Active funds are not index funds. These are probably more like your mutual funds and, and things that you're trying to outperform that benchmark, whether it's the market, which beta, which we have talked about

Jess: Yes.

Jessie: Now we're talking about alpha. So, an active fund is not trying to beat the [00:11:00] market. They're trying to beat whatever their benchmark is. So if small cap fund might compare itself to a small cap index instead of the s and p 500, it's not always trying to beat the market, which is the s and p 500.

Jess: Right. And the market, the s and p 500 is just the most commonly used measure. Common common list of stocks. But there's over like 3000. Listed stocks, so we're only pulling out right. Without going on too much of a tangent, but Yes, exactly. Nailed it

So there are hundreds of different indices, large cap, small cap tech, international energy, you name it. They can have a focus if you want, but each index is designed with its own rules. That elite club, like which companies qualify, how much weight each one gets, and we'll dive into those criteria in future

Jessie: Oh good. Yeah, because I always think about the main, the top three indices as index funds and forget that there are so many more. So that would be great to talk [00:12:00] about. Um, okay, let's talk about passive funds. So those are the ones like index funds that just follow the benchmark, right? They don't really take a lot of work.

Jess: Yes, passive funds don't try to beat the market. They try to match it. They simply replicate whatever's in their chosen index that makes them much cheaper to operate because you don't need analysts, fancy research teams or constant trading and rebalancing.

So let's start with the first benefit, low cost. That's why it can be low cost. That's why I wanted to talk about that. Think of an index fund, like a playlist that runs itself. There's no DJ choosing songs or having that curated set list that you have to pay. You're just playing and going. It's automated and rule-based, so therefore, the expense ratio, which is the percentage you pay annually to keep the fund running, it's super, super low. And for large cap index funds, large cap just means those bigger companies, [00:13:00] that's usually between 0.1% and 0.7%. So not even a whole percent, a fraction of a percent. Really, really low. 

Jessie: You're just paying a very minimal fee to buy into that fund for someone to just, you know, make sure it matches whatever index. So now we need to define a little jargon for anyone new listening. So an expense ratio, like you said, is a small fee that covers the cost of managing the fund. And active funds usually charge more because you're paying for people that are trying to beat the market, like you said, analysts, professionals, people that know what they're doing. But since an index fund is just mirroring the list of stocks, it's considered passive. So the fee is so much lower.

Jess: Exactly, and when you think long term, even a small difference in fees can really add up. A 1% fee might sound tiny, but over 30 years, that's thousands of dollars that could have been growing for you instead of being paid out in management.

Jessie: Right with that compound interest makes a big [00:14:00] difference. Yeah, that makes sense. So the next benefit would be diversification, right?

Jess: Yeah, so when you buy one share of an index fund like an s and p 500 fund, you instantly own tiny pieces of 500 different companies. That spreads your risk because if one company struggles, it's balanced out by others. That might be doing great.

Jessie: So we're not putting all of our eggs in one little Easter basket.

Jess: Exactly. Just keep in mind though that you are diversified across companies in that index, not necessarily across sectors or asset classes.

So, for example, the s and p 500 is still heavily weighted towards large US tech companies. Literally 10 stocks make up almost 40% of the entire index. So. You're getting company diversification because there are 500 companies, but you're not getting global or asset class diversification, meaning there's no fixed income products that [00:15:00] are in there for most people starting out index funds, especially ones that are tracking major benchmarks like the s and p 500 or the NASDAQ 100.

There are great place to begin. But each of those indices has its own criteria for which companies make the list, which we're gonna unpack that in super detail in future episodes. We've got some fund ones lined up. But I do want you, the, the takeaway there was just because you have an index fund doesn't mean you're necessarily instantly diversified.

Jessie: That is such a good point because yeah, you, that doesn't include bonds and treasuries and things like that. 

Jess: Right. Diversified stocks not a diversified portfolio.

Jessie: The point you made about the s and p 500 being a little heavy in tech right now too, that's a newer thing because of like AI, right? Like that wasn't always the case with the s and p 500,

Jess: That is true, and it's been getting more and more technology focused, but still have our lives, I would argue, 

Jessie: Well, because it used to be, when we first started this podcast, we talked about how the Nasdaq Indic [00:16:00] see or index was the like tech heavy index. But now we're saying like the s and p 500 is becoming more tech. Heavy, like more tech companies. Right.

Jess: Yeah, the NASDAQ 100 is still tech heavy because that's the criteria of it. It is technology, but, uh, the s and p 500 moves more with the NASDAQ because it's tech 

Jessie: Okay. Yeah. 

Jess: It's like a bigger piece of the pie.

Jessie: Yeah, and that can change and it does change. Like we said, there's a criteria, so those 500 companies aren't always the same. They move in and out depending on if they meet the criteria or not. For the s and p 500, 

Jess: That's Right. They're an elite club. If you don't meet that club,

Jessie: You're out. 

Jess: Yes.

Jessie: And I do have a question, that I thought of more recently on the difference between the indices values and then like the index fund values. So how come when I look at the s and p 500 index, like just the index as a whole? It says it's at about, like right now, [00:17:00] 6,857. That's dollars, right? Or basis points, I guess is what we call it.

Jess: And there there are dollars. We also call it points as well, but it is literally dollars.

Jessie: If the s and p 500 index is at 6,857, but a common index fund that mirrors the s and p 500, like VOO costs $629. That's like a 6,000 and something dollars difference. So if it's $629 a share for a, a index fund that mirrors the s and p 500, but the s and p 500 is $6,857. How is, how does that work?

Jess: This is a very good question. I think people ask all the time, so I'll give you the short answer and the long answer. The short answer is they are, index funds are designed to mirror performance, not price. So if the index is up 1%, the fund is going to be up 1%. That's the short answer. Give you the long answer now.

So which is the clarification, the [00:18:00] why most of it. So like the, the s and p 500 is what you quoted there. All the other indices they are. I'm gonna use a sports analogy, which is but there, I know

Jessie: on this podcast. 

Jess: I know it's, yep. My son's in basketball and basketball his

why, um, yeah, it is life.

So they're basically mathematical scoreboards. They're. The indexes. They are a math equation. They do not trade, they do not have shares. It's a calculation. So the number, you see, the SP 500 at 68, 57, that's a calculated value, not a price. So it's the score of the game.

Jessie: Okay. If That's the score, then what's the index fund?

Jess: So the index funds, they trade like stocks and they track keyword track the index using the stocks inside it, [00:19:00] but their price this time, it's set by supply and demand. It's influenced by fund structure. It's determined by assets under management, and it's not required to match the raw, raw index level. They're designed to move in the same percentage direction. As the index not have the same price. So they need to mirror the performance.

Jessie: Okay.

Jess: There's divisors to keep it manageable and there's a cr creation and redemption process and they act differently

Jessie: Well I know we're gonna talk about the history of it think that's gonna help put some of this into perspective. I'll save any follow-ups until after the history lesson.

Jess: Okay, but the important takeaway here and the answer to your question is the level does not matter. The percentage change is what matters,

Jessie: The level being the s and p 500 or the, the index fund price?

Jess: the price, both the index fund price versus the s and p 500 price, you want them to move in tandem

Jessie: But it [00:20:00] doesn't matter. Like their, their numbers are not gonna match, but they are gonna go up together. 

Jess: Correct. 

Jessie: Okay, 

Well let's wrap up this section so we can get into the history section and understand how these things even got started.

Um, okay, So, um, let's recap why index funds are so popular and some terms that were thrown out there. Active funds try to beat their benchmark, whatever that benchmark is, and they charge higher fees. This is called the expense ratio. It's usually a little bit more on active funds.

Passive funds, like index funds only track their benchmark and charge lower fees. They're a lot less work, so they'd cost a lot less for us to buy into. Index funds give you low costs, broad diversification and simplicity. You're not trying to pick winners, you're just letting the market do its thing. You're just buying into the market and the most common starting points are the s and p 500 and the NASDAQ 100. Two major indexes ,or indices, with their own [00:21:00] selection or criteria of rules. And we'll dig into that sometime in the future, but that's basics. 

Jess: Yes. 

Jessie: So have index funds always been a thing or are they a newer kind of investment product? Like when did they come about?

Jess: Oh, great question. I love this because we, the stock market also called public markets at its core is about the public accessing. The market, the public companies. And so we're constantly innovating ways for the public to access these things. So the first index fund for everyday investors came along in 1976, and it completely changed how people invested, and it was actually called the First Index Investment Trust. Later renamed to the Vanguard 500 Index Fund, and it was created by John C. Boggle, the [00:22:00] founder of the Vanguard Group.

Jessie: Yes, I've heard that name before. John Boggles kind of a big deal, right?

Jess: Yeah, we talk about the Boggle method. I hear that a lot. But he was actually inspired by a Nobel Prize winning economist named Paul Samuelson, who believed there should be a simple, low-cost way for people to invest in the market as a whole. So Boggle built a fund designed to mirror the s and p 500 index, which tracks 500 of the largest US companies instead of paying expense fund managers to pick and choose stocks. He said, why not just own the entire market?

Jessie: Hmm, that sounds almost too simple. I'm guessing Wall Street probably didn't like that.

Jess: Not even a little. When Boggle launched the fund, critics called it Boggle's Folly. They said it was a sure path to mediocrity and even un-American because it didn't make high fees for brokers or fund managers. Back then, the idea of settling for the market's average return seemed [00:23:00] boring, like admitting defeat, I guess.

Jessie: Well in reality ended up being genius and giving us all an equal playing field really.

Jess: Yeah, exactly. It was revolutionary for three big reasons. One, passive investing. It didn't rely on stock picking or market timing. It simply matched the performance of the index. Two, low cost. It was a no load fund, meaning no commissions to buy or sell shares that kept fees incredibly low. And three, it democratized investing. For the first time. Ordinary people or not for the first time, but it made it more easily accessible. Ordinary people could easily and affordably enter and invest in the entire US market, and that changed everything. It challenged the dominance of active management and opened the door for passive low cost and investing strategies we know today,

Jessie: Yeah, so the idea was don't try to outsmart the market. Just be the market. What did we say earlier? Don't beat the market. Be the market.

Jess: Yes. I really like that saying. That's great.

Decades later, Boggle's so-called volley has become the foundation of modern investing. What started [00:24:00] as a controversial is now considered brilliant.

Jessie: Yeah, it is brilliant from un-American to unbeatable, you know, and like yeah. How, how capitalistic of America. No, we gotta have people be paying more money for things. Like, no, this guy is like making it like, you know, opportunistic for all. I like that, investing is for everyone. So now I get what an index fund is and where it came from.

Actually, I didn't know it started in the 1970s, so that kind of blew my mind, but there seemed to be a lot of them. So like how many index funds even exist right now?

Jess: Thousands. Seriously. Thousands. There is an index for almost everything now. Large cap companies, small cap companies, growth stocks, value stocks, international stocks, clean energy, even cybersecurity. There's even fixed income indices. There's, there's so many.

Jessie: There's a fund for that.

Jess: There is a fund for that but each one's basically a different list with [00:25:00] its own criteria for which companies make the cut and how they're weighted.

Jessie: So when people talk about investing in the market, which one are they actually talking about?

Jess: So usually we mean the s and p 500. It's the most common benchmark for the US stock market because it represents 500 of the largest American companies. Another popular one is the NASDAQ 100, which is more tech heavy and includes giants like Apple, Microsoft, and Nvidia. But there's also the Russell 2000 for small caps stocks and the Dow Jones Industrial Average, which tracks just 30 big names.

So there isn't one single market per se. There are many markets, depending on which slice you want to track.

Jessie: And you can get an index funds for all of them. 

Jess: All of 'em. Yep.

Jessie: Although you might not necessarily want to do that, but we can talk about that later. 'cause there's some overlap. There can be multiple companies in or there can be, there's one like the Mul one company, well actually one company could be the same index.

'cause like Google for example, Alphabet, they have two different stocks. Right. And aren't they both in the s and p 500?

Jess: They are. So that, that's one company though. So there's 503 stocks in the s and p

Okay, so it's the companies, companies, but that's not necessarily 500 stocks. Some, a few of those companies have multiple stocks in there.

Jessie: They have different classes.

Jess: Yes. Okay. 

Jessie: Mm-hmm. 

Yeah, I keep hearing index funds can be either a mutual fund or an ETF, so I'm wondering what the difference is [00:26:00] 'cause I've definitely, I think we've all heard of some popular index funds like S-P-Y-V-O-O that mirror the s and p 500, but what would be the difference between a mutual fund and ETF when we're talking about an index fund?

Jess: Yes, this is a great question and I like that we started with history because. Both can track the same index, but the way that you buy them is a little different. So when we were talking about the first fund in the seventies, that was a mutual fund,

Jessie: Oh, '

Jess: cause eTFs didn't exist yet. 

Jessie: Yeah, that's what I thought. Okay.

Jess: So a mutual fund trades just once a day, so they had to figure out how they were gonna do this, right? And the mutual funds still work this way today, so they trade once per day at the day's closing price. The first index fund was a mutual fund because ETFs did not exist yet, and ETF, which is short for exchange traded fund. Trades on the exchange- everything is in the name. It trades all day long on the stock market. Just like a stock. It acts like a [00:27:00] stock. It's not one, but you can buy or sell it at any time the market is open. And ETFs didn't come around until 1993, and the first ETF actually tracks the s and p 500, which was SPY. And ETFs are the evolved version of mutual funds. It's like Pokemon,

Jessie: I like it.

Jess: And there's another evolution coming, which we'll have another episode on, but I know lots happened between seasons. 

Jessie: So ETF mutual funds, same, but different mutual funds predated ETFs. So ETFs were not a thing yet. ETFs are kind of like a modern day mutual fund. But for our listeners, this is one of the aha moments for me in an earlier episode. I think in the very beginning, everything is in the name as in all of these jargon terms. Usually it's in the name. Once you start learning one thing, you kind of understand all of it. So a mutual fund [00:28:00] is a mutually funded asset. 'cause we're all mutually putting our money into this fund. So it's uh, like a group gift. We all put our money together to buy more things. And an exchange traded fund is still kind of like that group gift, but it trades on the exchange like a stock, which means it's a little more accessible.

And I think you also don't have to have, like with mutual funds, you usually have to have more money to put into them for the most part. And ETFs aren't always quite as expensive. And you, I think you can buy fractional shares of ETFs, but not mutual funds, right?

Jess: Well, without going into much of a tangent, fractional shares is something that's relatively new, as in within the past 10 years. You were not able to do fractional shares for a very long time, so in mutual funds, you can buy in terms of dollars, so you could always buy fractional shares of mutual funds, but in terms of dollars, usually they have minimum investments of $2,000, $1,000, and so it still was a barrier of entry. the introduction of exchange traded funds, [00:29:00] it was purely on price. Not dollars. And since they're lower you, it brought down the barrier to entry and made markets more accessible. And then once fractional shares entered the game, then it made it really accessible. And fractional shares came when, um, commissions went down to zero as well. And then retail trading boomed.

Jessie: That makes sense. Yeah.

Yes. Yes. 

Jess: But if you're just getting started, the Boggle method, buying a broad-based low-cost index fund that tracks something like the s and p 500, it's a great way to begin. It's diversified, it's simple, and it's the perfect foundation while you learn. But here is my favorite aspect about markets. They evolve, which has kind of been the theme today, the little underlying in a way. New indices have emerged that sometimes even outperform the s and p 500 because they use different criteria like focusing on profitability, dividends, or innovation thematic investing, that those are newer. [00:30:00] So that's the beauty of the stock market. That's why I love the market. That's why I think it fits with my neurodivergent brain. It's always changing because companies grow and new industries take shape. The stock market, at its core, it's just a collection of companies and those indices are the scoreboards tracking how those companies are doing, and new companies are emerging all the time.

Jessie: Hmm. So if someone listening hasn't started investing yet, what's the move here?

Jess: So the best way to start is by dollar cost averaging into a broad based index fund. That means investing a cent amount of That means investing a set amount of money on a regular schedule like every paycheck, no matter what the market's doing, smooths out the ups and downs and builds the habit of consistency. You want healthy habits, especially if you're starting investing for the first time. You don't have to time the market. You just have to be in it. Be the

Jessie: Be in it for a long time. Time your best asset [00:31:00] here. 

Jess: yes. 

Jessie: And I will say I didn't understand. I kept hearing dollar cost averaging and I thought it was gonna be something really complicated, but it's not. It's just like you said, just consistently however much. If you can even only put $5 a month right now into the stock market, start doing that. That's what dollar cost averaging is. Just do it. Every month, every paycheck, whatever you can do, start doing it. Set it up automatically. That's all the dollar cost averaging is, and it just means you're like buying into the stock market over time. And that's gonna, that's really your best bet for the, the long term.

So the takeaway is really start simple, stay consistent, and let time do the heavy lifting. You don't have to do a thing except to put money in there. 

Jess: That's true. Index funds are the foundation for the first building block for most investors. Once you understand them, you can explore all the other ways to invest. There are so many.

Jessie: Yes, and we talk about a lot of them and we have a lot more [00:32:00] talk about. 

Jess: Gosh, we do.

Jessie: Okay, let's wrap this one up. So today we learned that an index fund is one of the simplest and smartest ways to invest. First, we broke down the name itself. An index is just a list of stocks that represent part of the market, like the s and p 500, which tracks 500 of the largest US companies. A fund is a pool of money from lots of investors that buys a collection of investments.

Put those two together and you've got an index fund, a fund that invests in everything on that list. One share gives you instant diversification across hundreds of companies. Then we talked about active versus passive investing. Active funds try to beat their benchmark and often come with higher fees.

Passive funds like index funds just track their benchmark and usually cost less. Low cost [00:33:00] diversified and simple approach is what makes them so powerful, especially for new investors. We also went back in time to the 1970s when John Bogle launched the first index fund at Vanguard. People called it boggles Folly, but his idea to give us regular investors the whole market at low cost ended up transforming this entire industry.

And now there are thousands of different indexes tracking everything from tech giants to small companies to clean energy. You can buy them through a mutual fund or an ETF, but the goal is the same to mirror the market, not outsmart it. So if you're new to investing, starting with a broad based index fund, like one, tracking the s and p 500 and dollar cost averaging into it over time is one of the easiest ways to build wealth.

Because you don't have to pick the next deck winner because you don't have to pick the next big winner. You just have to own the market. Don't beat the market. Be the market.

Jess: Be the [00:34:00] market. All right, well that's it for today's episode of the Market MakeHer Podcast. Remember, index funds aren't about timing the market, they're about time in the market. The earlier you start, the more those consistent, boring investments can turn into something pretty and powerful, and we mean years and decades, friends.

Jessie: Yeah, it takes time. And don't overthink it. Just start learning, start investing and let the market work for you. Go get a job money and do that thing rich people do. Make my money. Make money.

Jess: If you liked this episode or learned something, please make sure to follow market. Make her wherever you get your podcast streaming everywhere. We don't actually even know where we just hit this button and it goes places. And if you really wanna help us grow, leave a quick review or share it with a friend who's ready to start investing.

Jessie: And don't forget to check out our show notes for links, resources, and our favorite tools for getting started.

Jess: Thanks for listening. We'll see you next time. And remember when you build knowledge...

Jessie: You break [00:35:00] barriers. 

Jess: Remember, investing involves risk. There is always potential to lose money when investing in securities. Market Maker provides educational content and resources for informational purposes only. We are not registered financial advisors and do not provide personalized investment advice. Any information provided by market Maker on our website or podcast is not intended to be a substitute for professional financial advice.

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