Index funds are either mutual funds that mimic the component stocks of an index or an Exchange Traded Fund that does the same thing. (ETFs are more like stocks than mutual funds because they trade during the day.) The index funds are "better than" actively-managed funds because the management company isn't doing wasteful trading and running up expenses - trying to BEAT the index. Index funds have lower costs than actively managed funds - as a result.

I'd recommend ETFS like SDY and QQQ - but it's really your decision as to what you are looking for in risk and reward.

Index funds are composed of stocks. They will diversify your investment holdings.

When it comes to investing: Diversify and conquer.

Loading up on one stock can have great rewards or great disappointment.

Sears, for instance. Buying Sears in 1945 was the best thing in the world.

Buying Sears in 1995 was a disaster.

(then there is Enron, Washington Mutual, Radio Shack, Polaroid, Kodak, Citicorp, Fannie Mae, Freddie Mac, AIG, and giving all your money to Bernie Madoff)

Index funds are a great way to diversify. Instead of buying one stock you end up owning the index such as the S&P 500. Inexpensive way to diversify over various sectors. Vanguard has a few. Their fees a lot lower than other providers.

Index funds are a "basket" of stocks that mimic the index that they are targeted to mimic. They are safer then an individual stock in that they automatically give you some diversification. Visit, Yahoo Finance or go to your local library and check out Jim Cramers books. They can teach you all that you need to know.

mutuals

I'm just getting into investments and I started by buying a few stocks but now some people that individual stocks are risky and that I should invest in "index funds". What are they? How are they different from normal stocks? And how can I research which of them I should buy?