What are the arguments against index investing?

smili said:
One of the best arguments imho is that there is really only one index - a single global, whole world, cap weighted index. Any deviation from that is necessarily an "active" choice as to allocation. So to the degree that we deviate from that global index, we are all "active" investors.
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yeah, I would agree. At some point a guy has to figure out what is practical. For my grandkids that have many years to live I just put them in the Vanguard Total Stock Market Index. When their parents get nervous I tell them they own everything. Every burrito they buy and every text they send is owned by them. SPY is good enough for me due simply to the dividend. Young men can favor one index while avoiding another. I hold a few individual stocks as a hobby.

Trading stocks is one thing. Anybody can do that. But I would not invest serious money in individual stocks unless I could devote 100% of my time studying their balance sheets. I'm too busy trading to invest in stocks, so if I am so lucky as to have a profit after spreads, commish, and taxes, I just funnel it all into SPY.
 
When I traded stocks I did more work on the Index's chart the stock I was in and it's Sectors chart, basically if Index & Sector is bullish, I was just looking for a dip which was excessive caused by news, go Long make some $$'s easy.

Too much work though these days, I just trade the DAX and US30 directly, beats going through 100's of charts and stock screens every night :)
 
ETcallhome said:
yeah, I would agree. At some point a guy has to figure out what is practical. For my grandkids that have many years to live I just put them in the Vanguard Total Stock Market Index. When their parents get nervous I tell them they own everything. Every burrito they buy and every text they send is owned by them. SPY is good enough for me due simply to the dividend. Young men can favor one index while avoiding another. I hold a few individual stocks as a hobby.

Trading stocks is one thing. Anybody can do that. But I would not invest serious money in individual stocks unless I could devote 100% of my time studying their balance sheets. I'm too busy trading to invest in stocks, so if I am so lucky as to have a profit after spreads, commish, and taxes, I just funnel it all into SPY.
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so are you satisfied with your return from investing in indexes?
 
ETcallhome said:
I can argue for
very few have enough money to buy 500 stocks
your chances of picking the one stock that will outperform the index is about 1 in 500
after you own more than about 5 diversified stocks you end up performing about like the index.
low cost practically no cap gains

put 50% in SPY and see if you can beat it with the other half (85% of all pro money mangers can't beat it and the 15% that do rotate every year, only 5% have beat it 5 years in row)
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can I look at your stats somewhere? or is it just your guess? thanks.
 
The problem with index investing is namely understanding what you are investing in. Let's say that you invested in the FTSE 100 in order to benefit from a recovery in the UK economy. Now around 80% of FTSE 100 company earnings come from abroad. So you can see that while you may think that by buying a FTSE100 tracker you are insulating yourself from the economic woes outside of the UK you are in fact wrong. Yes if the UK economy thrives the FTSE 100 index will gain some benefit but it is by no means the sole driver of returns. Interestingly, the Glencore flotation will skew the FTSE 100 away from the UK due to its size. So if you plan on investing in an index, make sure you know exactly what it is and how its performance is influenced.
 
Sotnis said:
can I look at your stats somewhere? or is it just your guess? thanks.
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oh I get it, you mean the 85% underperform? I forget who publishes that. But it's about the same every year. Remember the total return includes the performance fee and that alone draws them down below the index. That and trading costs, and then you have cap gains taxed on top of that. Just check some money managers or managed mutual funds and compare them to the index. Then also remember, you had to be lucky enough to pick the outperformers over the underperformers. And in a broad based index like SPY or VTSMX you get the sleeping factor so no one sector can drive you down.

However if I wanted to invest in just one sector, like energy, I would pay the analyst to help me pick the 1 or 2 or energy stocks which had the best fundamentals.

for more info google Jack Bogle (the Father of index investing)

Typically a high net worth individual will pay a money manger to manage his money (due to the fact that he is busy trying to win the Superbowl) not to outperform the index.
 
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