Can you tell me what is “the” index fund to compare against. What is the return that an index investor should have received over the last 30 years? This is my biggest complaint against indexers, they claim that indexing is the way to go, yet really most are just sector bettors who disguise underperformance as “tracking error” or “temporary return divergence” for the style selected at the moment and any over performance as proof of index superiority. To understand what an index investor should be investing in is nigh impossible and allows the “Index” advocates to pick pretty much any style at a point in time to “prove” the point indexing can’t be beat. For proof they look at active funds after the fact then backtrack what the proper “index” to compare to is and post that as proof of index bettering. As to do in advance and there is a refusal. I believe right now there is pretty close to 30,000 index funds and companies that will create an “index” for you if you want to create your own.
Oh let’s do what the world’s biggest index booster, Swedroe says, he tweets every day about how index investing is vastly superior to active investing, sorry he will not post a fund for comparison of returns in advance, though if he wants to disprove an active investing technique he picks an index allocation after the fact, if you want one in advance for results you can expect, you need to pay 1% of your investment balance annually and he will special design a set of index funds for your very own that is sure to outperform anyone that dares think they can go alone in the investing world. Of course that cannot be compared to anyone else’s results because your index funds were specially designed for your factors and you of course are unique just like your investment portfolio. But what the index your should be tracking yourself against will be provided at the end of the year.
Of course Warren Buffet, who got rich by investing also states that index investing is the only way for individual investors to go, but of course all his money is managed ..... actively by him and paid advisors he hires.
Look at Bernstein one year he is advocating 75% stocks then after 2008 he advocates 20 years of cash in the bank, yet he believes in “indexing” and actually has real clients. Amazing....
Most people are index investors and the variations of results is immense. I have one simple goal, I am trying to beat inflation over the long term with my bond income and dividends. If I do that I am happy with my results. I could care less what an “index” investment returns for comparison purposes. I do include index funds in my portfolio at times, primarily either the S&P500 or VTI but I do that for market exposure and to keep from having to follow too many stocks and having to decide which to sell as I use the index to balance off the market exposure.
I think in general the average population does not truly understand what risk is as they believe by being in “indexes” that risk over the long term is eliminated. With the federal reserve now actually targeting stock market returns as a gauge of success in policy making, this has the makings for another disaster and angry crowds of uninformed investors down the road. Deflation seems to be seeping in as a long term fact of life and so therefore income from investing is going to eventually also be effected. For now fixed income just continues to drop in yields, pretty soon you’ll be paid to take a loan and have to pay to “save” with a bank.
