The Biz Bucks Blog provides former Biz Bucks students and other busy professionals with a summary and commentary of seminal articles from the opinion pages of the Wall Street Journal. You can be notified of a new posting by subscribing to the blog (enter email in box on right) or by following on Twitter: @BizBucksGuy.
To Index or Not to Index: Not Much of a Question Anymore April 7, 2015 8:00 AM | Tagged as index funds
WSJ April 4, 2015, Page B1: “How Stock Pickers Could Beat the Indexing Goliath”, by Jason Zweig
WSJ April 2, 2015, Page A13: “Activist Shareholders, Sluggish Performance” by Jeffrey Sonnenfeld
Two articles have once again supported the investment strategy known as indexing. This strategy simply allows you to easily buy into an entire market by buying a mutual fund that is UN-managed but which replicates a market index, say the S&P 500. By having a balanced, diversified set of these index funds, investors use a buy-and-hold strategy to ride the market. Indexers have no plans to beat the market, only to match the market. How does this work out?
Zweig shows that this strategy beats most fund managers. One study shows a broad index (S&P 1500) beats 87% of fund managers last year. That was for one year only. After several years, the fund managers that beat the broad market drops. In graduate school, the Biz Bucks Guy was told less than ten fund managers have beaten the market for five consecutive years. That‘s ten out of the thousands of fund managers on Wall Street. Don’t like these odds? Try indexing. It is passive. You get to sleep at night. Over the long haul, you should do better than almost any other investment strategy.
Of course, there is no guarantee in investing. You are on your own. The Biz Bucks Guy only wants you to be aware of this approach. You will NOT hear of it from your local broker who makes NOTHING on this approach.
By the way, the only decision you make with this strategy is which company’s index funds to buy. You should compare administrative costs and pick the company with the lowest admin costs. If they don’t disclose their admin costs, move on. Check out Vanguard as one who discloses their admin costs.
[Although opinion is included, The Biz Bucks Blog is primarily written to former students of Biz Bucks training courses to encourage their daily reading of the three opinion pages of the WSJ. This refreshes principles of Biz Bucks courses and improves business acumen on topics not discussed in Biz Bucks training.]
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