Management Form

• Low-cost index funds are an example of passive management investing. This means there is less handling of the funds by management. According to Index Funds Advisors, Inc., the
  S&P 500 Index consistently outperformed 98 percent of mutual fund managers over the past three years and 97 percent over the past 10 years.
  
  

Cost/Fees

• Less handling of the funds means less portfolio turnover, resulting in lower fees and fewer taxes.
  
  

Common Low-Cost Index Funds

• The most common low-cost index funds are the Standard & Poor's 500 and the Dow Jones Industrial Average. Many investment companies offer index funds, the most popular being Vanguard, Fidelity, Dreyfus and the American Funds.
  
  

Advantages

• The passive management style allows for lower costs and taxes. This style is simplistic in that it mirrors the funds of the target index, which allows for fewer turnovers of the securities and a better chance of staying within the portfolio's guidelines. Another benefit of index funds is the diversification they offer. It's like getting a collection of stocks in one investment.
  
  

Disadvantages

• An index fund cannot perform better than the target index it mirrors. Because the fund mirrors another, it must also either buy or sell when the target index does.