Index Fund Investors: You're Really Picking Stocks. Here's Why

One of the easiest ways to invest in the stock market is to buy a good index-tracking mutual fund or exchange-traded fund (ETF). Trillions of dollars track the S&P 500 (SNPINDEX: ^GSPC) through funds like the SPDR S&P 500 ETF (NYSEMKT: SPY), and you'll find similar trackers for the most valuable stocks in the Nasdaq Composite (NASDAQINDEX: ^IXIC) as well as all 30 members of the Dow Jones Industrial Average (DJINDICES: ^DJI).

Index funds are great ways to get cheap exposure to the entire market. But investors shouldn't see them as perfect diversifiers because the makeup of the indexes themselves creates concentration risk that many people don't even realize.

Stocks were generally mixed, with the Nasdaq moving to another record high. Other major benchmarks moved slightly lower but retained substantial gains for 2021 and over the past year.

Source Fool.com