Buying Index Tracking Stocks

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Index tracking stocks are not really stocks, but rather exchange traded funds, or ETFs. Learn about the problem of not outperforming the market with index trading stocks with help from a portfolio manager in this free video on personal finance and money management.

Part of the Video Series: Stocks & Bonds
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Video Transcript

Okay. So what are index tracking stocks? They are, in fact, not really stocks. They're equity trade...exchange traded funds, or ETFs. If you Google an ETF, you'll find what that means. But an...but an exchange traded fund will take different stocks and mimic whatever index it's looking at. A very popular one is QQQ -- that's the ticker symbol for it. And QQQ is a Nasdaq index of the top 100 issues in the Nasdaq index, and if you were to buy QQQ, you will do, in essence...or at least, the goal of the index is to give you the same return as the index would. So if you buy the ETF QQQ, you will follow the market. The inherent problem or issue that you'll find with doing index tracking shares is that you will not outperform the market. You won't under-perform the market, but you won't outperform the market. And the idea is just to follow the index and mimic the market as it does.

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