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What's a stock index fund?

Glad you asked, because it can be a terrific part of a retirement portfolio. But first you need to know what a stock index is.

Thousands upon thousands of individual stocks are traded in the United States and around the world. A number of so-called indexes have been set up to track how a particular part of the stock market - or the stock market as a whole - is doing. There are indexes that track large-cap companies, small-cap companies, the entire stock market and so on. One of the most common indexes is the Standard & Poor's 500, known as the S&P 500, which represents a broad cross section of 500 large American companies.

What an index fund does is simple: It invests in the entire index. For example, an S&P 500 index fund buys all the stocks in the S&P 500 index. And that's it.

Just about every major mutual fund family offers index funds.