While we have successfully
recommended actively-managed mutual funds that have beaten
the market, some investors still want to have a portion of
their portfolio in low-cost index funds. We will occasionally
recommend index funds and exchange-traded funds (ETFs) that
we believe are good low-cost investment vehicles.
Index funds are designed for
investors who want to mirror the performance of a particular
index (such as the S&P 500) instead of investing in an
actively-managed mutual fund in which a mutual fund manager
(or a team of managers) tries to out-perform the index. Many
mutual funds fail to beat broad indexes while charging higher
fees than most index funds. In theory, index funds will perform
better than most actively-managed mutual funds while charging
lower fees.
Exchange-traded funds (ETFs)
track an index, a basket of assets, a commodity, a sector,
or an industry. Like index funds, ETFs provide diversification
and expense ratios lower than most mutual funds. Unlike mutual
funds, ETFs trade like a stock and can be sold short and purchased
on margin.
Performance
Since Inception1
Total Return
Index Funds & ETFs Portfolio:
52.5%
S&P 500:
3.5%
Average Annual
Return
Index Funds & ETFs Portfolio:
7.1%
S&P 500:
5.2%
1Inception:
September 23, 2005. Data last updated January 1, 2012.
