How does index funds work?
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A **share** is a piece of a **stock*
A **fund** is a group/bundle of stocks for you to buy in one-go. Well, you don’t own each stock, but the fund represents the prices of those stocks, so if those actual stocks go up, then the fund goes up.
An **index** is a tracking of multiple stock prices. The Dow Jones and S&P 500 are most well known.
An **index fund** is a fund that “tracks an index. So if the S&P 500 (an index of 500 huge companies, weighted by market cap, so Apple is #1) goes up 12.6%, then any and all index funds tracking the S&P 500 should theoretically all go up 12.6% as well.
Investing in index funds is an easy way to **diversify**. If you only buy Apple stock, then if Apple tanks your investment tanks. If you buy 50% Apple and 50% Google and Apple tanks but Google goes up, they can balance out. Now do this with tens or hundreds of stocks. Diversifying lowers risk, but it also lowers reward (as you could invest only in Apple and pray it only goes up, and it be by a much higher % then say the S&P 500 does as a whole).
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