Chapter 3. A One-Step Strategy for Selecting Superior Investments: Indexing

If you have been reading the financial press, you have no doubt learned that the typical equity mutual fund lags the S&P 500 a majority of the time. This observation has been borne out repeatedly. Indeed, if you decided to limit your stock market investments to a low-cost S&P 500 Index fund[1] and do nothing else, you would be ahead of the pack.

Nonetheless, it is not always fair (or informative) to compare the diverse universe of equity funds against one particular standard. The S&P 500 represents mainly the behavior of large U.S. company stocks. Although the companies in the S&P 500 represent the bulk of the dollar value of all publicly traded stocks, in fact, more than ...

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