Over 700 finance terms, Shmooped to perfection.
See ETF vs. Index Fund. An index fund is just a big fat basket of stocks or bonds geared to reflect a market "strategy" (i.e. whatever logic that consumers will buy). If you believed in sin doing well over time, you might try to find an index with tobacco, alcohol, gun sales, porn, and gambling. The more generic funds are those baskets that reflect a popular index like NASDAQ or the S&P 500 or the Dow. Here’s the composition of the Dow-Jones Industrials which are 30 big fat cap companies that are supposed to reflect the industrial strength of this country and the world (you have probably heard of a few):
Alcoa American Express Boeing Bank of America Caterpillar
Cisco Chevron EI DuPont Walt Disney General Electric
Home Depot Hewlett-Packard IBM Intel Johnson & Johnson
JP Morgan Kraft Coca-Cola McDonald’s 3M Merck
Microsoft Pfizer Procter & Gamble AT&T Travelers
United Technologies Verizon Wal-Mart Exxon Mobil