The financial services industry may have become less efficient in the last 40 years, but the index fund, one of the most efficient innovations of the 20th century, is changing that.
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We shouldn’t invest internationally to capture short-term outperformance. Rather our aim should be a reduction in volatility without a discount in long-term return.
Some of our competitors have declared that only costs matter when selecting an index fund. However, the human element will always matter.
Philosophically, it was an easy decision to adopt all-capitalization strategies for four Vanguard international index funds. Executing the changes took teamwork across the globe.
Faced with alarming headlines, we must maintain reasonable expectations and remain focused on our clients’ goals. Consider three episodes from the first half of 2016.
We launched a different way of investing on August 31, 1976. We take pride, and credit, in knowing that our once-derided experiment has evolved to be the default investment approach for many.
The case for indexing is predicated on the zero-sum game and the associated effects of costs, meaning that low- cost indexing should beat the average active manager over longer periods of time. However, sometimes investors may be better off with low-cost active choices.