Since its beginnings in the early 1970s, indexing as an investment strategy in the United States has grown rapidly and has performed favorably in relation to actively managed investment strategies. Indexing has many recognized advantages: low costs, broad diversification, minimal cash drag, and—for taxable investors—the potential for tax-efficiency.
Here we review indexing as an investment strategy, focusing on the concept of investing as a “zero-sum game,” the importance of costs, and the application of indexing across asset and sub-asset classes.
This article was produced by Vanguard and not by the Quartz editorial staff.
- All investments are subject to risk, including possible loss of principal.
- Diversification does not ensure a profit or protect against a loss.
- Past performance is no guarantee of future results.