Indexing is an investment approach that seeks to match investment returns of a stock or bond index. An investment manager tries to duplicate target index by holding all securities in index. This is what is called a passive management approach which emphasizes broad diversification and low portfolio turnover.

There are a variety of indexes to suit each investment style. The largest and well known index is S&P 500. This index is dominated by largest blue chip companies and accounts for close to 75% of U.S. stock market value. Other indexes include Nasdaq, Wilshire 5000 Total Market Index, S&P MidCap 400, Morgan Stanley Capital International Europe, Australasia, Far East (MSCUI EAFE) and various bond indexes.

Since 1926, stock market has an average rate of return of 11.3%. Investors have earned more or less depending on type of investments and risks taken. It is very important to note that this return is before costs have been factored. Therefore, those investing in actively managed mutual funds may have a net return lower due to these costs and thus will earn significantly less than market average.

These costs include:

- Management expense ratio (including advisory fees, distribution charges and operating expenses)

- Transaction costs (brokerage and other trading costs)

Index fund expense ratios are typically 1 percent and usually even less, compared with 1.5 to 3 percent for actively managed funds. Fund expenses and transaction costs for a typical mutual fund can take a big bite out of your net investment returns. Add sales commissions to your purchases and even more of your returns are swallowed. Typically, index funds can be purchased on a no- load basis thus saving you sales charges.

I'm sure that most of us don't really know what happens between time your swipe your credit and receive purchase approval (or, ugh, credit card declined). This is a process that happens millions of times over during course of a day and one which we take for granted.

Let's VISA as an example, although this process works similarly for MasterCard. American Express works through a closed loop system whereby company alone authorizes and settles all transactions directly with merchants and consumers.

1. You buy a new pair of fancy shoes for that upcoming dinner party using your VISA card.

2. The store clerk swipes your card and enters price. The magnetic stripe on back of your card is encoded with your card number and expiry date.

3. The merchant's terminal transmits transaction to their bank, electronically imbedding date, price and merchant information for transaction.