funds own a tiny share of every firm in the stock market, and thus the mutual fund's value will fluctuate with

the overall stock market's average. We call a mutual fund that seeks only to mimic the market's overall

performance an index fund.

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17.2 • How Households Supply Financial Capital 421

Diversification can offset some of the risks of individual stocks rising or falling. Even investors who buy an

indexed mutual fund designed to mimic some measure of the broad stock market, like the Standard & Poor’s

500, had better prepare against some ups and downs, like those the stock market experienced in the first

decade of the 2000s. In 2008 average U.S. stock funds declined 38%, reducing individual and household

wealth. This steep drop in value hit hardest those who were close to retirement and were counting on their

stock funds to supplement retirement income.
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