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Indexing
The investment landscape is divided between active and passive investment management. Active management involves selecting individual stocks or securities to outperform a benchmark, whereas passive management typically focuses on replicating a market capitalization index (benchmark). Over the past few decades, the growth of passive investing has outpaced active management, driven by lower fees and the difficulty many active managers face in beating their benchmarks.
Passive funds have become the cornerstone of modern investment portfolios, praised for their low costs and market-wide exposure. But is there more to the story than meets the eye? Could it be that these funds, while seemingly beneficial, are facilitating practices that ultimately disadvantage the very investors they aim to serve?
What is Indexing?
Stock market indexing is a passive investment strategy that aims to replicate the performance of a specific group of stocks or the overall market. It involves creating a portfolio that closely mirrors the composition and weightings of a particular stock market index, such as the S&P 500 or the Dow Jones Industrial Average. By investing in this diversified basket of stocks, investors can achieve broad market exposure and potentially benefit from overall market growth without attempting to pick individual stocks. This strategy is popular due to its simplicity, low costs, and historical long-term returns.
