Which of the following best describes an index fund?

An index fund is designed to replicate the performance of a specific financial market index, such as the S&P 500 or the Dow Jones Industrial Average. By investing in an index fund, investors gain exposure to all the securities contained within that index, which typically includes a broad array of companies and sectors. This approach to investing allows for diversification, reducing the risk associated with investing in individual stocks. Index funds are usually passively managed, meaning that they do not try to outperform the market but rather aim to match its performance, making them a popular choice for many long-term investors.

The other options do not accurately describe an index fund. Investing in high-risk stocks refers to a specific risk profile rather than the diversification and market-mimicking nature of an index fund. A fund managed by a single financial advisor implies active management, which contrasts with the passive approach of index funds. Lastly, high-fee investment options typically refer to actively managed funds that require more resources to manage compared to index funds, which often have lower fees due to their passive management style.