Why Is It Good That Every Investor Doesn’t Use Index Funds?

I’m a big fan of index investing and so is Jack Bogle.

And it just so happens that he was at Berkshire Hathaway’s annual shareholder meeting on May 6th.

As he normally does, he discussed index funds but he spoke about them in a different light.

You probably have a few questions from the first 3 sentences. Let me answer those and then get back to the topic.

What Is Index Investing?

Here is the definition from Investopedia:

A form of passive investing that aims to generate the same rate of return as an underlying market index. Investors that use index investing seek to replicate the performance of a specific index.

So if you invest in an S&P 500 Index, it should replicate the performance of the S&P 500 without you having to do anything.

Who Is Jack Bogle?

This is the other question you probably have from the first paragraph.

It’s a good question.

You can read all about him on his Wikipedia page.

But here’s the summary:

John Clifton “Jack” Bogle is an American investor, business magnate, and philanthropist. He is the founder and retired chief executive of The Vanguard Group. His 1999 book Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor became a bestseller and is considered a classic within the investment community.

He is considered the godfather of index investing and he is the founder of The Vanguard Group.

The Vanguard Group’s focus is offering index funds to their investors.

Why Is It Good That Every Investor Doesn’t Use Index Funds?

Because their would be chaos.

You can read the article from Yahoo! Finance here.

If everyone indexed, returns would be terrible and the markets would lose their ups and downs.

And when you went to pull your money out, it would be very difficult because of low trade volume.

It would be terrible.

Like it or not, we need traders.

And they need index investors.

Lucky for us, Jack Bogle puts the odd of everyone going to index investing at 0%.

And he’s usually conservative so I feel good about that number.

So keep indexing with confidence.

Summary

Index investing is still the way to go for most investors.

But luckily there are still investors that think they can beat that index.

Most don’t but a few actually do.

Those few give the rest of the traders hope to keep trying.

And the cycle continues.

So I think we are safe to keep indexing for the foreseeable future.

Have you ever tried to beat index funds?

If so, how did it turn out?

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4 Comments

  1. I adore it when people come together and share opinions, great blog,
    keep it up.

  2. This is a very good tips especially to those new to blogosphere, brief and
    precise information… Thanks for sharing this one.
    A must read article.

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