Index Investing Understanding Indexing as an Investment Strategy Index investing was once available only to institutional investors, such as pension fund managers. Lipper Inc. In this Plain Talk, we explain how indexing has proven to be a simple and powerful approach to long-term investing. Indexing is an investment approach that seeks to match the investment returns of a specified stock or bond market benchmark, or index. That figure, however, is the gross pie, before costs.
Funds charging sales commissions swallow even more of the returns.
By contrast, one of the key advantages of an index fund should be its low cost . An index fund should pay only minimal advisory fees, keep operating expenses at the lowest possible level, and keep portfolio transaction costs at minimal levels. So, the magic of the index fund is that it leaves a larger share of the pie for investors. Actual results confirm the pie analogy. Over time, the broad stock market indexes have outperformed the average general equity fund.