Think of it this way: Index funds mirror the performance of anything that can be tracked. The Dow Jones Industrial index. The S&P 500. The Russell 2000.

For example, SPDR S&P 500 ETF (SPY) is a collection of all the stocks in the S&P 500. That means purchasing every stock on the index, regardless of its underlying fundamental value or prospects for future returns. The more money that flows into that ETF, the more people own (at least a piece) of those stocks.
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