Index funds raise money to buy new stocks through the process of collecting capital from their investors.
When an individual decides to invest in an index fund, they are essentially pooling their money together with other investors in the fund.
The fund manager then uses this collective capital to purchase a diversified portfolio of stocks that mirror a specific index, such as the S&P 500.
The beauty of index funds is that they offer a low-cost, passive investment option for individuals who want to participate in the stock market without the need for active management.
When new money comes into the fund, the fund manager simply uses it to purchase more shares of the stocks already included in the index.
In this way, index funds are able to grow and expand their portfolio without the need for complex or active investment strategies.
Of course, there will always be those who question the simplicity and effectiveness of index fund investing.
They may argue that actively managed funds offer a better chance at outperforming the market, or that index funds are too passive and lack the excitement of day trading.
However, the data consistently shows that over the long-term, index funds outperform the vast majority of actively managed funds, while also offering lower fees and greater stability.
In short, index funds raise money to buy new stocks through the process of collecting capital from their investors and using it to purchase a diversified portfolio of stocks that mirror a specific index.
It’s a simple, effective, and time-tested strategy that has proven to be a smart choice for investors looking for a low-cost, passive investment option.