Part 2/7:
Firstly, it's crucial to recognize that index funds fall into two main categories: mutual funds and exchange-traded funds (ETFs). Both can represent index funds, yet they exhibit key differences that can significantly impact how your investments perform.
In the context of a bakery analogy, purchasing a mutual fund is akin to buying a pre-packaged loaf of bread. With a mutual fund, you typically need to meet a minimum investment requirement. When you invest, you secure a specific dollar amount of that fund, effectively walking away happy.