when putting together mutual funds and etfs fund sponsors attempt to create portfolios mirroring the components of a certain index this allows an investor to buy a security likely to rise and fall in tandem with the stock market as a whole or with a segment of the market 
index examplesthe s p 500 index is one of the world s best known market proxy indexes and one of the most commonly used benchmarks for the stock market it includes 80 of the total stocks traded in the united states conversely the dow jones industrial average is also well known but represents stock values from just 30 of the nation s publicly traded companies other prominent indexes include the nasdaq 100 index wilshire 5000 total market index msci eafe index and the bloomberg us aggregate bond index like mutual funds indexed annuities are tied to a trading index however rather than the fund sponsor trying to put together an investment portfolio likely to closely mimic the index in question these securities feature a rate of return that follows a particular index but typically have caps on the returns they provide for example if an investor buys an annuity indexed to the dow jones and it has a cap of 10 its rate of return will be between 0 and 10 depending on the annual changes to that index indexed annuities allow investors to buy securities that grow along with broad market segments or the total market adjustable rate mortgages feature interest rates that adjust over the life of the loan the adjustable interest rate is determined by adding a margin to an index one of the most popular indexes on which mortgages are based is the london inter bank offer rate libor for example if a mortgage indexed to the libor has a 2 margin and the libor is 3 the interest rate on the loan is 5 