Index fund versus ETF
An index fund seeks to track a market index. An exchange-traded fund (ETF) is a fund structure whose shares trade on an exchange. Index funds can be mutual funds or ETFs, and ETFs can be indexed or actively managed.
What diversification does—and does not do
A broad fund may hold many companies or bonds, while a narrow sector fund can remain concentrated. Holding multiple funds does not guarantee diversification if their underlying holdings overlap. Diversification cannot eliminate market losses.
Compare the actual fund
Read its prospectus and consider the index or strategy, holdings, expense ratio, potential trading costs and your time horizon. Low fees are useful, but the cheapest fund is not automatically suitable for every goal.
Match risk to the purpose
Money needed soon may call for different risks and liquidity than retirement savings intended for decades. Broad stock funds can decline sharply, are not FDIC-insured deposits and may lose value. Historical returns do not guarantee future results.