It’s a well-known secret that Index Funds should play a major role in most investors’ portfolios.
With their ultra low costs (the typical expense ratio of an index fund was 0.15% for U.S. Large Company Indexes vs. 1.36% for the average large cap actively managed mutual fund as of 2005 source), instant diversification (you can own all 500 stocks in the S&P 500, or whichever index you like, with just one stock), low turnover (which triggers fewer capital gains events), and no style drift (that’s when active managers go outside their core investment market in order to increase returns), it’s no wonder these instruments have been attracting increasingly larger amounts of investor capital over the past few years.
For other useful investment tips, download our white paper, “How To Improve Your Investment Performance.”
This article titled “It’s Getting Harder And Harder To Deny The Power Of The Index Fund” highlighted the most important benefit of index funds – it’s the American Pharaoh of investing because it beats its competitors by a wide margin:
Looking at advanced portfolios holding 10 asset classes between 1997 and 2012, researchers found index fund portfolios outperformed comparable actively managed portfolios a staggering 82% to 90% of the time.
And as this white paper illustrated, an index fund’s winning percentage increases over time:
(Posted June 10, 2015)
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• Avoid High Expenses: Index funds have up to 90% lower fees than actively-managed mutual funds and outperform them over the long term. Don’t own them? You may be paying too much.
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Rainier Trinidad, CFA
San Diego and Coronado’s Fiduciary Financial Advisor
Parabolic Asset Management
206 J Avenue
Coronado, CA 92118
Investment Risk Disclaimers: (i) Investments involve risk and are not guaranteed to appreciate, and (ii) Past performance is no guarantee of future results.