Index Definition

Jan 08, 2024

Reviewed by: etf.com Staff

Edited by: etf.com Staff

Learn more about Index ETFs

An index is a benchmark or reference point that represents the performance of a specific market segment or asset class. It comprises a basket of securities, such as stocks, bonds, commodities, or currencies, that are selected based on predetermined criteria, such as market capitalization, industry sector, or geographic region. ETFs that track an index are known as index ETFs. These ETFs aim to replicate the performance of the underlying index by investing in the same securities in the same proportions as the index. Index ETFs offer investors a diversified and cost-effective way to gain exposure to a particular market or asset class. Popular market indices that serve as benchmarks for index ETFs include the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite. These indices track the performance of various segments of the U.S. stock market. Index ETFs based on these indices provide investors with broad exposure to the U.S. equity market.

ETF Glossary

ETF Glossary is etf.com’s collection of key terms and definitions related to exchange-traded funds. ETFs are investment funds that are traded on stock exchanges, and they can encompass a wide range of asset classes, including stocks, bonds, commodities and more. Given the diverse range of ETFs and the complexity of financial markets, having a clear understanding of ETF-related terminology is instrumental for investors looking to make informed decisions, manage risks effectively and navigate the evolving landscape of ETF investments.

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