The first theoretical model for an index fund was suggested in 1960 by Edward Renshaw and Paul Feldstein, both students at the University of Chicago. While their idea for an "Unmanaged Investment … See more

The lack of active management generally gives the advantage of much lower fees compared to actively managed mutual funds and, in … See more

Low costs
Because the composition of a target index is a known quantity, relative to actively managed funds, it costs less to run an index fund. … See more

Economist Eugene Fama said, "I take the market efficiency hypothesis to be the simple statement that security prices fully reflect all available … See more

Tracking can be achieved by trying to hold all of the securities in the index, in the same proportions as the index. Other methods include statistically sampling the market and holding … See more

Traditional indexing
Indexing is traditionally known as the practice of owning a representative collection of See more

Losses to arbitrageurs
Index funds must periodically "rebalance" or adjust their portfolios to match the new prices and market capitalization of the underlying securities in the stock or other indexes that they track. This allows algorithmic traders (80% … See more