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Overview of Indexing
This is a four-part
walk through of what it means to use an indexing strategy, and why
it works. Part 1: Why indexing?
Is an index strategy right for you?
The answer may
surprise you.
What type of person would
choose an indexing strategy to grow their investment dollars? Perhaps a shrewd one. Passive investment
strategies like indexing do have a lot of appeal. After all, you're
letting the world's top analysts from professional firms like Standard & Poors, Dow
Jones, and the FTSE Group choose your stocks.
Proponents of indexing have come to understand that the cost
savings of following the stock market—rather than paying more to try
and beat it—is both a logical and profitable choice.
In 1975 the index mutual fund was born: a low-cost and easy way for
the average investor to own a portfolio of 500 stocks with a single
share purchase. Then, in 1993 the first index ETF, or Exchange Traded
Fund, came on the scene, based on the S&P 500.
Indexing is here to stay. Assets in registered ETFs and index mutual
funds had reached more than $1.4 trillion by the end of 2007 and of
all U.S. households that owned mutual funds, 31 percent owned at
least one index fund.¹
But what exactly is indexing—and
is it right for you? This web site
should help you to answer those questions.
¹ Section 3 of
the
Investment Company Fact Book,
48th Edition, 2008. |
