The Index Reality Check

Index investing is sold as the neutral choice. It is not neutral. It is a set of decisions somebody else made for you, and you are allowed to look at them.

This section is the critical counterpart to the rest of the site. Not because indexing is a mistake for everyone, but because the case for it is usually made with the costs left out and the concentration left unsaid.

You will find what the S&P 500 has become now that a handful of companies drive most of its movement, and what a concentrated index does to a portfolio that was bought for diversification. You will find what an expense ratio actually removes over twenty years, stated in dollars rather than in decimals.

You will also find why the return of a fund and the return of its index are two different numbers, and what an index buyer gives up that a stock picker keeps.

This section is written for someone who already holds index funds and has never opened the bonnet. Not for someone looking for permission to abandon them.

The honest position is that indexing wins against most active investors, most of the time, and that this is a low bar rather than a law of nature. The articles here measure the bar instead of repeating it.

The point is not to talk you out of an index fund. It is to make sure that if you own one, you know what is inside it and what it charges you for the privilege.