Why might an investor choose an index fund over an actively managed fund?

An investor might choose an index fund over an actively managed fund primarily because index funds are designed to replicate the performance of a specific market index, such as the S&P 500. This means that the objective of an index fund is to match the market return rather than surpass it. One of the main advantages of index funds is their typically lower management fees, which arise from the passive management style—there are no high trading costs or extensive research expenses involved in actively picking stocks.

Lower fees are attractive to many investors, as they can lead to better overall returns over time due to reduced costs. Since index funds do not require active management, they often have lower operation and administrative costs. Additionally, they generally have higher tax efficiency compared to actively managed funds, since they trade less frequently.

Choosing an index fund reflects a strategy where an investor values predictability and cost-effectiveness in achieving market returns without attempting to time the market or select individual securities—a process often linked with higher risks and costs.