5 Tips for Better Index Investing

Index fund investing should be efficient and low cost. The goal is to capture market returns less a small fee in a diversified portfolio that covers basic asset classes. When constructed correctly, an index fund portfolio provides the highest probability for reaching your long-term investing goals.

How Friends Help Friends Become Indexers

You’ve learned to discount high-cost, actively-managed funds, ignore Wall Street brokers, and see the pitfalls of model ETF portfolios that use tactical asset allocation and charge high fees. You’ve seen the light and clearly understand why a low-cost index fund portfolio has the best chance to achieve your investment goal. Now you want to help others find their way out of the darkness.

The Yield Trap

Bond returns depend upon the purchase price, yield at the time of purchase and sale price. The rest is math. Unfortunately, investors often struggle with which “yield” to use when trying to compare investments. There are many, and using the wrong yield may yield disappointing results.

Index Investing by the Numbers (INFOGRAPHIC)

Index investing has attracted a growing number of investors because of its ability to provide lower cost and better performance, on average, than active investing over the long run.

Times have changed since the first publicly available index fund was launched by John Bogle and the Vanguard Group in 1976. Back then, critics called it “Bogle’s Folly.” One competitor even circulated a propaganda poster featuring the likeness of Uncle Sam with the slogan: “Help Stamp Out Index Funds – Index Funds Are Un-American!”

Webinar Replay: Why Index Investing Makes Sense in All Market Conditions

Using short-term market information to invest for the long term is like trying to put a square peg in a round hole. Daily market conditions are erratic, which makes it hard to see how you can make successful investment decisions to reach a relatively stable long-term goal, such as retirement.

Eugene Fama Is Wrong…Relatively

“The question is, when is active management good?
The answer is ‘Never.’”
Eugene Fama, Morningstar ETF Conference
on September 18, 2014

English philosopher Thomas Hobbes suggested that good and evil are relative, depending on what an individual seeks and avoids. In other words, an act can be good in some circumstances but evil in other circumstances.

What Long-Term Investing Truly Is

“Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.” –Warren Buffett

Every investor should understand that longtime investing is not the same as long-term investing. The former simply entails buying and selling assets over several years. Meanwhile, the latter requires you to buy, hold and maintain selected assets through thick and thin.

Plenty of investors find themselves unintentionally conflicted between the two.

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