How do index funds match market performance if stocks that perform poorly are removed from the index -- wouldn't index funds lose money in selling those stocks?

Answer 1

Index funds aim to replicate the performance of a specific market index by holding the same stocks in the same proportions as the index. When poorly performing stocks are removed from the index, the index fund automatically adjusts its holdings to align with the new composition of the index, typically without incurring significant losses. Although there may be some costs associated with buying and selling stocks, index funds generally maintain their performance through this passive management strategy, as they mirror the overall market trend rather than trying to time the market or select individual stocks.