“Greater rewards, lower costs”

Basically it boils down to whether with active investing the extent of achieving above-market returns over time will surpass the cost factor to beat an index investing strategy. I have little doubt that sufficient opportunities exist in the short term to beat the market, but whether that out-performance is consistent in the long run is doubtful. Therefore, I am willing to go for a compromise -  apply both strategies!

The great majority of active managers do not know specifically where the equity market is heading. They can more or less predict it in general terms; sometimes they will be spot on, and at other times they will get it wrong. On average they will give you the market return, but then you still would have had to pay them.


No, index investing is not a fad, it’s not a specific investment style or strategy which often emerges in the investment game as the “new solution” just to be replaced by another a few years later. It is the average result of all active trading in the marketplace, and that can’t change.

1.              Are these low-cost index funds just the latest fad in a range of investment fads seen in                  the past?

2.              Where does index investing fit in with many active fund managers out there that                  supposedly know much more than the market?

3.              With which strategy (active or index) will an investor stand the best chance to achieve                  real growth over time?

That is probably true, but it is also true that over time you won’t receive sub-par performance. A manager who achieved top returns probably took huge bets against the market index: to his/her mind maybe not bets, but smarter choices (stock picking). It is possible, but not very probable that this manager will outsmart the market every year. One truth holds: the market is not difficult to beat because it is dominated by stupid people, it is difficult because it is dominated by very bright people. Furthermore, whether one likes it or not, our markets are efficient over time, otherwise we would have developed and accepted alternative market mechanisms by now. In essence index investing trusts the efficiency of markets. 

4.              Why even bother with index investing if that means you will never receive top-quartile                  performance returns?