Q. Why should I consider indexing in investment?
A. I can think of 5 reasons that show the power of indexing -
1. Proven Performance
Standard & Poor found that in the 15-year period through June 30, 2018, S&P 500 Index beats 92% of large-cap funds. Morningstar found that Vanguard 500 Index has done better than the majority of funds in its category - large cap blend.
2. Tax Efficiency
Only a handful of companies in the S&P 500 change each year, so trading expenses and tax consequences are minimum.
3. Low Cost
Fidelity has a no-fee Zero Large Cap Index (FNILX) which is linked to Fidelity's own index of 504 stocks that are nearly the same as those in the S&P 500. Vanguard charges just 0.04% for Vanguard S&P 500 (VOO) ETF.
4. Hard to Find Better Performing Funds
If you want to find a better performing actively managed fund, the odds are against you - A study by S&P found that "out of 500 domestic equity funds that were in the top quartile as of Sept 2016, only 7.1% managed to stay in the top quartile at the end of Sept 2018".
5. More Market Exposure
In addition to S&P 500, you can also buy Vanguard Total Stock Market Index (VTSAX) which reflects the performance of every exchange-listed U.S. stocks and charges 0.04%. Fidelity Zero Total Market Index (FZROX) does the same and charges no expenses.
A. I can think of 5 reasons that show the power of indexing -
1. Proven Performance
Standard & Poor found that in the 15-year period through June 30, 2018, S&P 500 Index beats 92% of large-cap funds. Morningstar found that Vanguard 500 Index has done better than the majority of funds in its category - large cap blend.
2. Tax Efficiency
Only a handful of companies in the S&P 500 change each year, so trading expenses and tax consequences are minimum.
3. Low Cost
Fidelity has a no-fee Zero Large Cap Index (FNILX) which is linked to Fidelity's own index of 504 stocks that are nearly the same as those in the S&P 500. Vanguard charges just 0.04% for Vanguard S&P 500 (VOO) ETF.
4. Hard to Find Better Performing Funds
If you want to find a better performing actively managed fund, the odds are against you - A study by S&P found that "out of 500 domestic equity funds that were in the top quartile as of Sept 2016, only 7.1% managed to stay in the top quartile at the end of Sept 2018".
5. More Market Exposure
In addition to S&P 500, you can also buy Vanguard Total Stock Market Index (VTSAX) which reflects the performance of every exchange-listed U.S. stocks and charges 0.04%. Fidelity Zero Total Market Index (FZROX) does the same and charges no expenses.
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