Index funds are a lowcost alternative from "summary" of Common Sense on Mutual Funds by John C. Bogle
Index funds are indeed a low-cost alternative to actively managed funds. The primary reason for this cost advantage lies in their simplicity. Unlike actively managed funds that require a team of analysts and portfolio managers to constantly research and select individual securities, index funds simply aim to replicate the performance of a specific market index. As a result, they have lower transaction costs, lower management fees, and lower operating expenses. The clarity of index funds further enhances their cost-effectiveness. Since index funds seek to mirror the performance of a market index, investors know exactly what they are getting. There is no need to worry about the fund manager's ability to outperform the market or make risky investment decisions. This transparency not only reduces uncertainty but also eliminates the need for expensive marketing and advertising campaigns to attract investors. In terms of coherence, the logic behind index funds as a low-cost alternative is undeniable. Studies have consistently shown that the majority of actively managed funds underperform their benchmark indices over the long term. By simply tracking an index, investors can achieve market returns without the added costs and risks associated with active management. This coherent strategy not only simplifies investment decisions but also aligns with...
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