Simple English definitions for legal terms
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Definition: Indexing is a method of adjusting payments or investments to account for inflation or to track a specific group of securities.
Example 1: When you receive a salary increase to keep up with the rising cost of living, this is an example of indexing. For instance, if you earn $50,000 per year and inflation is 2%, your salary would be adjusted to $51,000 to maintain your purchasing power.
Example 2: Indexing can also refer to investing in a fund that mirrors a particular index of securities, such as the S&P 500. This means that the fund's performance will closely match the index it tracks. For example, if the S&P 500 increases by 10%, the fund will also increase by approximately 10%.
Both examples illustrate how indexing is used to adjust payments or investments to account for changes in the economy or market. It helps to ensure that individuals or funds maintain their purchasing power or achieve their investment goals.