Facts on the Benefits of Index Investing

Here's a piece from Vanguard that offers some stats on how index investing has done versus actively managed funds:

Indexing has generally beaten many of the actively managed funds available. Over the 20 years that ended December 31, 2006, for example, the Vanguard® 500 Index Fund outperformed 80% of the actively managed large capitalization funds. [Sources: Lipper Analytical Services, Vanguard, and Standard & Poor's.]

And one of the main reasons index funds do so well:

One reason many index funds have consistently done better than most managed funds is because they typically have lower expenses. . . . It is that gap between expenses of the two types of funds that can give you the advantage from indexing. [Sources: Lipper Analytical Services, The Plexus Group, and Vanguard.]

So which would you rather have, a fund that returns 10.5% but has 1.5% in expenses or one that returns 10% and has 0.2% in expenses? (I don't know the exact numbers, but the illustration gets the point across.)

For more on this topic, check out these posts:

• Illustration of How Costs Can Greatly Hamper Your Investment Returns (And Why Index Funds Do So Well)

• Another Vote for Index Funds

• Blending Index Funds to Achieve Higher Returns

• Low Costs Usually Equal a Better Investment (And the Various Costs You Need to Look For)

Comments

[mary jo]

Does anyone use their credit card to charge money orders at a grocery store? Has anyone had any luck with this?