For those interested in getting the same results as the stock market in the last century without the hassle of choosing individual stocks, there are index funds. Making money in the stock market shouldn't be hard. Over the last century, the market has shown a general incline in value even in with the cost of recessions and depressions factored in. Anyone who consistently invested over the years should be handsomely rewarded in the long run. The stock market is made up of thousands of individual stocks that have both gone up and down and choosing the right stocks isn't an easy task.

An index fund works by matching the movement of one stock market index. Two of the most common indexes cited when determining whether the Market is up or down on that particular day are the Dow Jones Industrial Index and the NASDAQ Composite Index. The Dow Jones is made up of 30 of the largest and most established companies and was created over 100 years ago. The NASDAQ is an electronic stock exchange and generally a haven for fast-moving technology stocks. The S&P 500 is another index that is often cited and has available index fund shares.

To match the index, each index fund share is made up of a proportional amount of stock from each of the companies within the index it matches. An index fund also differs from mutual funds in that they aren't managed; they blindly follow the index, for better or for worse: The formula determines which stocks to buy, whereas a mutual fund is actively managed by a money manager who decides how much of each stock to buy. An index fund significantly cuts down on the expenses with no experts to pay, and as an added bonus, an index fund will generally outperform mutual funds over the long haul. In fact about 80% of mutual funds cannot claim to have beaten index in any given year, proving that the market is still a tough thing to understand, even for professionals.

The drawback to an index fund, however, is that it is designed to exactly match the the index it is based on. This means that they are not completely safe alternatives to picking stocks. Anytime the market goes down, an index fund will almost certainly follow. Also, since an index fund matches the market, rather than trying to beat it, enormous gains are less likely. For every 80% of mutual funds that do not beat an index fund, there are always 20% that do. And those lucky and smart investors will be reaping the most rewards from a good year in stocks. However, if steady growth over the long haul with less risk is what you desire, an index fund is a hard choice to beat.