Index Fund
A type of fund that tracks a market index (like the NZX 50 or S&P 500) rather than trying to beat it. Lower fees than managed funds. Warren Buffett's recommended approach for most people.
An index fund is a type of investment fund that aims to match the performance of a specific market index — like the NZX 50 (New Zealand's top 50 companies) or the S&P 500 (America's top 500 companies).
Instead of a fund manager choosing which stocks to buy, an index fund simply holds all the stocks in the index in the same proportions. This passive approach means much lower fees — typically 0.1-0.5% per year compared to 1-2% for managed funds.
Warren Buffett famously recommends index funds for most investors. His reasoning is simple: most professional fund managers fail to beat the index over long periods, so why pay higher fees for worse performance?
Why this matters
Index funds are the simplest, most cost-effective way to invest for most people. In NZ, options like Smartshares (available through InvestNow and Sharesies) offer index funds tracking NZ, Australian, US, and global markets. The lower fees compound in your favour over time — potentially saving you tens of thousands compared to higher-fee managed funds.
Related Investing terms
ETF (Exchange-Traded Fund)
A type of investment fund that trades on the stock exchange. Holds a basket of shares, bonds, or other assets. Popular in NZ via platforms like Sharesies, InvestNow, and Hatch.
Managed Fund
An investment fund run by a professional fund manager who decides what to buy/sell. You invest money and the manager does the rest. Higher fees than index funds but potentially higher returns.
Dividend
A payment made by a company to its shareholders, usually from profits. In NZ, dividends come with imputation credits that reduce your tax. Some investors build portfolios around dividend-paying stocks.
Put this knowledge to work
Steady helps you track, save, and grow — with AI that speaks plain English.
Try Steady free