The Cost of Tracking any Index

nyse modernIndexes were originally developed in the late 1800’s, early 1900’s, as a barometer to what markets were doing overall, rather than trying to determine trends of the cumulative market by looking at different specific stocks making up the market; because, some stocks may fall, and others may rise in price, but what is the overall effect on the entire market?

Indexes were originally designed to track those changes. Indexing today has become a means of getting exposure to the broader markets the index targets and are designed by committees for the companies who make the index (e.g., Dow Jones, Russell, Standard and Poors, etc.).

But, are you getting that exposure to the asset classes in a cost effective manner?

This short article shows how different indexes do different things at times and how you may not be getting the results you think you may be getting. And at what costs?

 

So what market dimensions should indexing focus on? The factors involved in sound Evidence Based Investing: Market Pricing; Diversity; Return Factors; Behavior; Randomness of Returns; Avoid International?

 

 

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  1. In the interest of disclosure: I do use DFA sub-managed SA Funds with most clients (not a fund requirement, but a business decision I’ve made).

Analogies that explain the difference between investing and planning (Yes, they are different)! :

This blog is not a solicitation; simply an explanation of the basic philosophy and approach.

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