Is there a book about financial terms?
Probably. But you have the internet. Try google. Or wikipedia.
I know what mutual funds are loosely but what's a index?
http://www.investopedia.com/terms/i/index.asphttp://www.investopedia.com/terms/i/indexfund.aspTranslated:
A stock "market" is a market for stocks. Kind of like a fruit market is a place where you would buy and sell fruit. But with a stock market, it's not necessarily a physical place you go to trade, so much as a loose collection of stocks that are grouped together for one reason or another, sort of how you might casually refer to "the textiles industry" even though the industry itself is not a building or place you would go to buy textiles. Or you might casually refer to "the energy market" including oil, has, solar, geothermal, etc. even those those things are not necessarily associated by physical location or ownership. You can very easily casually refer to any arbitrary grouping of industries regardless of the actual physical location(s) or natures of those industries. A stock "market" is kind of like that.
Stocks themselves are typically trade on an exchange, which is somewhat more like a physical market or bazaar where people actually trade things. Except that in this case it's not a physical market, it's electronic. Like amazon or ebay are "markets" where goods are exchanged.
An index is an arbitrary way of measuring the performance of some subset of market(s). For example, imagine if you owned a physical market with thousands of goods. You might track the buying and selling of
every type of good on the market. But you might also want to track specific subsets of goods. For example, if your market sold both fruit and fish, it would be reasonable to track the fruit trade and the fish trade separately. An index is any arbitrary grouping of market trades tracked together for whatever reason. So you might have a "total market" index that tracked everything. And you might have a "fruit index" that only tracked fruit. But, there's no reason for you to necessarily track exclusively fruit or exclusively fish or exclusively anything in your index. You could, for example, track track saltwater fish from freshwater fish separately. Or both fruit and fish from California separately from fruit and fish imported from Hawaii. Or whatever you wanted. That's an index.
Now, there are stocks. And you can buy and sell stocks on an exchange. (And in some cases maybe commodities, options contracts, or whatever. But for the moment we're talking about stocks.) But if you buy only one stock, you're "putting all your eggs in one basket" and if that particular stock plummets, then you've just lot a lot of money. So, one solution to this is to diversify, by investing in a bunch of stocks. Historically it's been a trend that even though individual stocks or industries might die, generally the overall trend of the market as a whole is to rise. Kind of like people. Individuals are born and die, sometimes wars or famines happen and kill entire local populations, but the overall total human population has tended to rise. But it's difficult to predict where the wars and famines are going to happen. If you just guess where to put your roots, you might guess wrong. And if you buy exclusively one stock, you might also guess wrong and lose everything.
So, some people invest in a bunch of stocks rather than just one, figuring that even though any one single stock might crash, the overall market will tend to rise. But this introduces certain practical difficulties. For example, let's say you want to invest equally into IBM, Microsoft and Google. Well, IBM is trading for $158/share right now, Microsoft for $41/share and Google for $516/share. So if you buy one of each, that's not equal. Your investment in Microsoft is $41 out of $715 and your investment in Google is $516 out of $715. Making it all even requires buying more shares of Microsoft. Well, doing that requires you to spend a lot more money. One share each of Microsoft, IBM and Google is $41+158+$516 = $715. If you buy, say...12 shares of Microsoft for $492, three shares of IBM for $474 and one of Google for $516, your ratio is at least approximately even, but you also had to spend twice as much money as when you only bought one of each. And in the case of a
large index, like the S&P 500 that has 500 different stocks in it, buying even one share each of all 500 of those companies, let alone an equivalent dollar amount of each, would probably be a lot more money than you have. And worse, it would be a horrible thing to do because buying one share each of 500 different stocks would mean that you'd be paying brokerage fees on every single one of those 500 transactions, spending a lot of time and energy, and generally losing a lot of money in the process.
A mutual fund is basically a pooled group of money from a bunch of different investors, managed by one person or company. Maybe it's impractical for you to personally buy ~$500 each worth of IBM, Microsoft and Google, but if 100 people each put in $600, that's $60,000 that the fund manager can use to buy $20,000 worth of each of those three stocks. Less hassle for you, and less money lost to broker fees. Though the fund manager takes a cut generally whether or not the fund itself makes or loses money.
An index fund is a mutual fund that specifically attempts to buy the same things tracked in an index.
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