“It is often said that a monkey could run an index fund. Nothing could be further from the truth. Precisely tracking an index requires a very high degree of market savvy, discipline and nerve.”
William Bernstein, The Four Pillars of Investing
“The thing that bothers me about index funds,” a financial adviser once told me, “is that there’s no one ultimately in charge. You’re effectively putting your faith in a computer.”
I suspect this is a common perception — and one, no doubt, that deters some investors from taking the indexing route. But it’s actually wrong on two main counts.
All right, there isn’t an active fund manager, or a team of them, in charge, deciding which stocks to buy and sell. But, judging by the track record of individual fund managers, that’s no bad thing.
Instead, for index funds, the course is set by something much more reassuring — namely the collective wisdom of the entire market, including all the brightest fund managers and traders out there.
Nor is it true that funds which track the market don’t have human managers. They do. And it’s no easy task.
I can highly recommend this article by Bloomberg’s Ben Steverman, which explains what goes into managing the world’s biggest mutual fund, the Vanguard Total Stock Market Index Fund. You may never view the humble index fund in quite the same way again.
This basically anonymous fund manager oversees $800 billion
ROBIN POWELL is a freelance journalist and the founding editor of The Evidence-Based Investor. Based in Birmingham, England, he founded Ember Television and Regis Media, and he specialties in helping disruptive financial firms to grow. He also campaigns for a fair, transparent and sustainable investing industry. You can follow him on Twitter at @RobinJPowell.
Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
