3: Mutual Fund And ETF Pitfalls: What the Industry Won’t Tell You

Disruptive ideas and technologies are revolutionizing entire industries. Amazon has changed the retail sales markets forever. Uber has altered the taxi and transportation industry. Also consider the fate of travel agents, newspapers, and traditional television networks. Interestingly, a disruptive and revolutionary idea transformed the investment field a half-century ago. This idea was index investing, invented by Nobel Prize-winning economist Paul A. Samuelson. However, John “Jack” Bogle, founder of Vanguard Group, Inc., turned this academic subject into a financial product available to ordinary consumers. The idea of indexing is simple. Instead of charging investors high fees while seeking to outperform the market by trying to pick winners, low-cost index mutual funds match the performance of an index by buying stocks in proportion to their representation in the target index. On average, actively managed mutual funds underperform the broader market after accounting for fees and other costs. Today, many savvy investors follow one of the key rules of survival in financial markets – if you can’t beat the market, join it.