What is a key advantage of using index funds compared to actively managed funds?

Using index funds offers a significant advantage in the form of lower expense ratios compared to actively managed funds. This is primarily because index funds are designed to track a specific benchmark or index rather than trying to outperform it through frequent buying and selling of securities. This passive management style requires far less oversight and, consequently, incurs lower operational costs, which translates to cheaper fees for investors.

Investors benefit from this cost efficiency over the long term, as lower fees can compound significantly, ultimately leading to higher net returns on their investments. The focus on broad market exposure without the hefty management fees associated with active strategies makes index funds an attractive investment option for many investors looking to maximize their returns while minimizing costs.