What is an index?

Funds that set out to match the performance of a given index are popular with investors. But what exactly makes up an index? John Stepek explains.

As we saw last time, most active' fund managers the ones who try to do better than the market fail. They don't beat the market, they underperform it. And because they charge substantial fees, they'll cost you a lot as well. In our view you're best off avoiding them.

The alternative is to buy a passive' fund. Instead of trying to beat a market, a passive fund just tries to copy it. So if you're bullish on a market in other words, you think it's going to go up then it often makes sense to invest in a passive fund.

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John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.