Unit 3 · Level 1 · Index investing
What is an index?
An index is simply a list of stocks with a running score. The S&P 500 tracks 500 of the largest US companies; the MSCI World tracks roughly 1,500 companies across about 23 developed countries. When the news says 'the market rose 1% today', they're quoting an index. And an index fund is a fund with one humble job: copy the list, hold everything on it, skip the guessing.
Free to play. No ads, no token, no account needed to start.
What you get asked
What IS a stock market index, at its core?
An index is a measuring stick, not a product. You can't buy 'the S&P 500' itself, but an index fund can copy it for you almost exactly.
The S&P 500 tracks roughly 500 of the largest ___ companies.
It's the world's most-watched index, with trillions of euros in funds tracking it. But remember: it's one country. The MSCI World casts a far wider net.
Match each index to what it tracks
From one country's giants to whole regions of the world, every index is just a different list with different rules for who gets on it.
What does an INDEX FUND do?
The fund just mirrors the list, no guessing involved. When a company joins or leaves the index, the fund swaps accordingly.
Why do most indexes give bigger companies more weight in the score?
Most major indexes weight by market value: a company worth €2 trillion sways the index far more than one worth €20 billion. Buy the index, and you automatically own more of the giants. 🐜
The rest of this unit
Why buying the whole haystack beats hunting for the needle.