An index fund is a financial instrument that provides exceptional diversity at low cost. It is traded like a stock, except that when you buy a stock you purchase shares in one company. When you buy an index fund, you buy all the companies in the index it tracks, all at once, in one simple transaction. Index funds don’t try to beat the market – they try to be the market: buying stocks of every fund on an index and mirroring the index as a whole.
Based on research from Paul Samuelson at MIT, index funds were introduced to the public by John Bogle, the founder of The Vanguard Group, who wrote his senior thesis at Princeton in 1951 on them. In 1973, Burton Malkiel’s book A Random Walk Down Wall Street made the concept of index funds even more accessible to the layperson.
At One Day In July, we are not alone in our core beliefs. Many well-known and prominent people in our society are ardent believers in index funds. Here are just a few:
Warren Buffett, American investor, philanthropist, and Chair/CEO of Berkshire Hathaway.
"When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds."
John Bogle (deceased), founder of The Vanguard Group, investor, business magnate.
“Don’t look for the needle in the haystack. Just buy the haystack!”
Burton Malkiel, American economist and author of A Random Walk Down Wall Street.
“Trust in time rather than timing.”
David Swensen, CIO of Yale University, author of Unconventional Success.
“Most active mutual funds are more interested in collecting fees than in boosting returns for investors.”
Paul Samuelson (deceased), first American to win the Nobel Prize in Economics in 1970.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
Christine Benz, Morningstar Director of Personal Finance.
"A single, broadly based index fund can give you exposure to the whole stock or bond market, enabling you to build an entire portfolio with just one or two funds."
Bill Bernstein, Financial theorist, author of The Four Pillars of Investing
"Does this (three fund) portfolio seem overly simplistic, even amateurish? Get over it. Over the next few decades, the overwhelming majority of all professional investors will not be able to beat it."
Scott Burns, columnist, author.
"The odd are really, really poor than any of us will do better than a low-cost broad index fund."
John Cochrane, Senior Fellow of the Hoover Institution at Stanford University.
"The market in aggregate always gets the allocation of capital right."
Jonathan Clements, Financial author, From Here to Financial Happiness.
"If you want a surefire strategy for outpacing most other U.S. stock investors, simply shovel money into an index fund that tracks a broad U.S. market index such as the Wilshire 5000 or the Russell 3000."
Eugene Fama, Prof. of Finance, Univ. of Chicago, Nobel Prize in Economics winner
"The market portfolio is always efficient...For most people, the market portfolio is the most sensible decision."
Benjamin Graham, author, The Intelligent Investor.
"The single best choice for a lifelong holding is a total stock-market index fund."
Alan Greenspan, former Chair of Federal Reserve
"Prices in the marketplace are by definition the right price."
Sheldon Jacobs (deceased), author of the first book on no-load fund investing
"The best index fund for almost everyone is the Total Stock Market Index Fund. The fund can only go wrong if the market goes down and never comes back again, which is not going to happen."
Lawrence Kudlow, former CNBC host
"I like the concept of the Wilshire 5000, which essentially gives you a piece of the rock of all actively traded companies."
Bill Miller, American investor, fund manager, philanthropist
"With the market beating 91% of surviving managers since the beginning of 1982, it looks pretty efficient to me."
E.F. Moody, author, advisor
"I am increasingly convinced that the best investment advice for both individual and institutional equity investors is to buy a low-cost broad-based index fund that holds all the stocks comprising the market portfolio."
Motley Fools: multimedia financial co. that provides financial advice for investors.
"Invest your long-term moolah in index mutual funds that are designed to track the performance of a broad market index."
Jane Bryant Quinn, author and financial journalist
"The dependable great investment returns come from index funds which invest in the stock market as a whole."
Page Regnier, former Morningstar analyst, Assistant Managing Editor at Money magazine.
"We should just forget about choosing fund managers and settle for index funds to mimic the market."
Ron Ross, author
"Giving up the futile pursuit of beating the market is the surest way to increase your investment efficiency and enhance your financial peace of mind."
Gus Sauter, former Vanguard CIO.
"I think a very good way to gain exposure to the stock market is through the Total Stock Market Portfolio on the domestic side."
Bill Schultheis, author, Financial Advisor.
“The simplest approach to diversifying your stock market investments is to invest in one index fund that represents the entire stock market."
Chandan Sengupta, Finance Professor, Fordham Univ., author.
"Use a low-cost, broad-based index fund to passively invest in a little bit of a large number of stocks."
Professor Jeremy Siegel, author of Stocks for the Long Run.
"For most of us, trying to beat the market leads to disastrous results."
Ben Stein, American writer and commentator.
"Scholarly work by Burton Malkiel, Eugene Fama and others has proved that it is the rare investor indeed who can outperform the overall market."
Larry Swedroe, author, Chief Research Officer at Buckingham Strategic Wealth.
"Over the last 75 years, investors who simply invested passively in the total U.S. stock market would have doubled their investment approximately every seven years."
Peter Di Teresa, author of Morningstar Guide to Mutual Funds.
“My recommendation: a fund that indexes the entire market, such as Vanguard Total Stock Market Index."
Jason Zweig, Wall Street Journal columnist.
"I think a total stock market index fund is not only the simplest, but the very best core investment for most people.”
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