Index investing, also called indexing, is a method of investing whereby a fund (or individual) buys the same stocks in the same proportions as in a target index. The objective of this method is to buy and hold the index. The idea is that technical analysis and fundamental analysis are flawed because they require the evaluation of the past performance of securities in order to predict future returns of the securities. It is impossible to accurately predict future returns based on the past records of securities, even on a short term basis.
The return achieved by indexing is the return of the index. If the index tracks a market sector, then the return is that of the sector. If the index tracks the market as a whole, then the return is that of the market. Practitioners of indexing make a conscious decision not to try to outperform the market, rather they decide to obtain the market return.
