How do management teams typically use index funds?

Management teams utilize index funds primarily to achieve broad market exposure in investment portfolios. By investing in index funds, teams can effectively track the performance of a specific market index, such as the S&P 500. This strategy allows for diversification across many different assets, which can help mitigate risk as it is less dependent on the performance of any single stock.

Index funds are designed to replicate the performance of a market index rather than trying to outperform it, which aligns with a long-term investment strategy focused on market returns. This investment choice is particularly appealing because of its generally lower fees and passive management style, making it easier for management teams to maintain a well-balanced portfolio.

The other choices do not align with the typical objectives management teams have regarding index funds. Investing exclusively in high-risk tech startups would not provide the diversification and stability that index funds offer. Minimizing employee retirement savings options contradicts the purpose of broadening investment choices for employees, and avoiding market fluctuations is unrealistic, as index funds are inherently subject to market movement due to their nature.