Index funds are investment funds that copy a market index like the S&P 500 instead of trying to beat it. They collect money from many investors and buy the same stocks that are part of the index they track. Most index funds are passively managed, which means they usually have lower fees than actively managed funds.
One popular example is the Vanguard S&P 500 ETF (VOO), which tracks the S&P 500 and gives investors exposure to 500 large U.S. companies, according to The Motley Fool. Even though index funds are simple and popular, many people still believe myths about them. Here are the biggest ones.
Myth 1: Index funds are completely risk-free
Many people think index funds are totally safe because they simply follow the market. This is false. Index funds avoid the risk of a fund manager making bad investment decisions because they don’t rely on active stock picking. However, they still face market risk because if the overall market falls, the value of the index fund also falls.
An index fund is only as strong as the index it follows. If the index tracks risky or unusual companies, the fund also becomes riskier, according to The Motley Fool. Experts say investors should still have a diversified portfolio and invest for the long term instead of expecting quick profits.
Myth 2: Every index fund is highly diversified
Many investors believe every index fund automatically offers perfect diversification. This is also a myth. Some index funds give much bigger weight to the largest companies because they use market capitalization weighting. This means companies like Nvidia, Apple and Microsoft can have a much bigger impact on the fund’s performance than smaller companies.
Some index funds put most of their money into just one sector, like technology or real estate. If that sector does badly, the whole fund can also lose value, even if it owns many stocks. Some index funds invest only in one country or one region. This means investors could miss good growth opportunities in other parts of the world, according to The Motley Fool. Some index funds also hold only a small number of stocks. If a few of those companies perform badly, the fund can be hit harder.
Myth 3: You never need to check your investments after buying an index fund
Some people believe they can buy an index fund and forget about it forever. That is not true. Investors should check their investments regularly. They should see how much money they have in stocks, bonds and cash. They should also rebalance their portfolio from time to time because changes in the market can change the way their money is divided.
Experts also say investors should make sure their investments still match their risk level and long-term financial goals. The Motley Fool says index funds are low-maintenance, but they still require some monitoring over time.
Why experts are bullish on the S&P 500 in 2026
The S&P 500 has already gained about 11% this year and reached around 7,575 points. Analysts at Oppenheimer and Citigroup expect the S&P 500 to cross 8,000 in 2026, according to The Motley Fool. Julian Emanuel, Chief Equity Strategist at Evercore, believes the index could even reach 9,000 in his bullish scenario, according to CNBC. A move to 9,000 would mean roughly 19% upside from current levels, according to Evercore’s Julian Emanuel.
Why Evercore expects stocks to keep rising
Emanuel says falling oil prices have improved the outlook for the stock market, according to CNBC. Brent crude oil had climbed to about $124 per barrel in May, the highest level since 2022. Higher oil prices pushed U.S. inflation up to 4.2% in May, a three-year high. Because inflation was rising, the U.S. Federal Reserve became more aggressive about possible interest rate hikes.
Also read: Explainer: How OpenAI plans to win the healthcare industry with ChatGPT AI
At its June meeting, nine out of 18 Federal Open Market Committee members expected at least one rate hike in 2026, compared with none in March. Since then, Brent crude prices have fallen by around 40% to about $75 per barrel. Lower oil prices usually help reduce inflation.
Emanuel believes inflation has likely peaked and should continue cooling during the rest of the year, according to CNBC. Because of this, he expects the Federal Reserve to keep interest rates unchanged instead of raising them further.
Why AI could push the market higher
Emanuel says investors currently have around $8 trillion parked in money market funds. Money market funds became attractive when interest rates were rising because they offered better returns. If interest rates stop increasing, Emanuel believes investors may move that money into the stock market, according to CNBC. He expects AI-related companies to attract a large share of those investments. Strong AI-driven corporate earnings could help lift the S&P 500 further.
Top holdings in the Vanguard S&P 500 ETF
The ETF’s biggest holding is Nvidia with about 7.9% of the portfolio. Apple makes up about 7.1% of the fund, according to The Motley Fool. Alphabet accounts for around 6.1%. Microsoft represents about 5.1%. Amazon makes up around 4.1%. Other major holdings include Broadcom, Meta Platforms, Tesla, Micron and Eli Lilly, according to The Motley Fool.
Why experts still like S&P 500 index funds
The Motley Fool says investors should not worry even if the S&P 500 does not reach 9,000 this year. The S&P 500 has delivered a total return of about 633% over the past 15 years, or roughly 14% per year. Very few professional fund managers have managed to beat those returns over the same period, according to S&P Global.
Only about 10% of large-cap active funds outperformed the S&P 500 over the past 15 years, according to S&P Global. Historically, investors who stayed invested in an S&P 500 index fund for 15 years have never lost money over any rolling 15-year period. The Motley Fool says long-term investing, low fees and broad market exposure make the Vanguard S&P 500 ETF one of the strongest index fund choices for investors looking ahead to 2026.
