A basket in a single ticker
An exchange-traded fund (ETF) holds many stocks at once and trades on the market like a single share. Buy one share of a broad ETF and you instantly own a slice of every company inside it.
An index fund is an ETF (or mutual fund) that simply tracks an index like the S&P 500 — it aims to match the market rather than beat it, usually at a very low cost.
Why beginners love them
Diversification comes built in: one bad company barely dents a basket of hundreds. Costs are low, you do not have to pick individual winners, and decades of evidence show that low-cost, broad index funds are hard for most active strategies to beat over the long run.
The trade-off
You give up the chance of outsized gains from a single stock that soars. For most people building wealth steadily, that is a trade worth making — and many investors hold a core of index funds plus a few individual stocks they research themselves.