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May 01, 2009


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Index funds definitely perform poorly in a bear market. They just perform a bit less poorly than everything else. I'll take a 30% loss over a 40% or 50% loss any day.

I'm not entirely convinced that you should just get your index funds and then sleep on them if the market is sending signals telling you to run for cover. On the other hand I'm also convinced that most attempts at market timing just don't work.

My current belief is that index funds + regular rebalancing = win (or at least the lowest possible loss in a recession for the average investor).

For some concrete figures that demonstrate the index fund edge, see the post, "Vanguard Index Funds Beat Their Category Averages"

Index funds perform poorly in bear markets. Last year I was in 100% cash nearly most of the year and I saved myself from 40% losses I would have suffered had I been in an S&P index fund! I'm now 50% back in index funds and my portfolio is up over 10% over the past month!

BTW, how did index funds do compared to ACTIVELY managed INVERSE funds last year? Not well!!

IMO - When you try to make the claim that index funds DON'T perform badly in bear markets just because they happen to do better than actively managed funds, you are really doing your readers a major disservice. Of course there are FAR more places to invest than simply index and active funds. There's bonds, commodities, SHORT funds, and cash, among others.

thanks for sharing such great post, according to me though they don’t give you whooping returns, over a period of time they grow steadily to give you good returns.

I would reason that one of the best reasons to invest in an index fund is quite simply because it requires less time and homework than individual holdings do. This is perfect for anyone who has a busy lifestyle that cannot afford to be reading too many financial reports and watching daily tickers.

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