by James J. Rowley, Jr., CFA and Dr. Jan-Carl Plagge
Acknowledgments: The authors thank David J. Walker, Garrett L. Harbron, and Daren R. Roberts for their valuable contributions.
Key points
- Because of governmental regulatory changes, the introduction of exchange-traded funds (ETFs), and a growing awareness of the benefits of low-cost investing, index investing has become a global trend over the last several years, with a large and growing investor base.
- This paper discusses why we expect index investing to remain successful over the long term—a rationale grounded in the zero-sum game, the effect of costs, and the challenge of obtaining persistent outperformance.
- We examine how indexing performs in a variety of circumstances, including diverse time periods and market cycles, and we provide investors with points to consider when evaluating different investment strategies.
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This paper is a revision of Vanguard research first published in 2004 as The Case for Indexing, by Nelson Wicas and Christopher B. Philips, updated in succeeding years by Mr. Philips and other authors. The current authors acknowledge and thank Mr. Philips and Francis M. Kinniry, Jr., for their extensive contributions and original research on this topic.