If you've been an FMF reader for more than 15 minutes, you know how much I like index funds. Well, it seems they're getting even better. Consider this quote from an interview with new Vanguard chief executive Bill McNabb:
Almost over any rolling 10-year period, index funds outperform active because of cost. That's the single biggest driver. If you think we're in an environment where single-digit returns might be more prevalent...cost is going to be an even bigger, more distinguishing factor. It's one thing to have a 75 or 100 basis point cost advantage in a market that's up 14 or 15 percent, it's another thing when it's up 7 or 8 percent. It's a huge difference in terms of percentage saved. The other part of it is that we haven't even begun to see power of indexing globally, as trading has becoming a global phenomenon.
We've talked before about the major impact costs can have on your investment returns. And in a world where returns may be even smaller for years to come, keeping your costs low is more important than ever. Hence, index funds are better than ever. ;-)
I wonder what difference it makes when a fund is down 35% YTD?
Posted by: Rob G. | October 24, 2008 at 07:49 AM
I just increased my contributions to an S&P 500 index fund from 5% to 10%. With an expense ratio of only .03%, it was by far the cheapest of my 401K options.
And @ Rob G. - I'm not retiring for another 30 years, so I don't care what the YTD is. I'd rather see low prices now, because it'll only increase my profits later.
Posted by: David | October 25, 2008 at 12:49 AM
I drink the index fund kool-aid also. I am 37 years old and have been investing for an eye for (hopefully) long-term gains. However sometimes history does not repeat itself and I am wondering if we are in a similar situation.
Posted by: aaktx | October 26, 2008 at 06:23 PM