About Index Investing
Index investing has been around for decades, and today it is herald as one of the most efficient ways to invest your money. Well known investors like Warren Buffet, Charles Schwab, John Bogle (founder of Vanguard), and Peter Lynch (famous Fidelity Magellan Fund manager) and many others have publicly endorsed index investing as a very efficient method for investors to expose themselves to stock investments.
Some of the more notable advantages to index investing include:
- Low Cost
- Near Market Rate of Return
- Pure Asset Classification
- Low Tax Exposure
- Investment Transparency
THE ROLE OF INDEX INVESTING
The world of index investing has expanded rapidly. Still, many advisors/consultants are not deploying them fully. Initially index investments were limited to traditional indexes like the S&P 500 and NASDAQ 100.
Today many exchange traded funds (international, small company, industry sector, investment style, real estate investment trusts, commodity, and other asset-classes) have been introduced, offering tremendous utility for those investors seeking exposure to a broad representation of the investment universe.
OUR APPROACH
For the portfolio manager, the advantages of using indexes can be tremendous. Today the ability to pin point a group of stocks based on dividend yield, market capitalization, industry sector, fundamentals, geographic location, or other characteristics has improved immensely. This capability provides the portfolio manager with the ability to be very specific about what assets are held in the portfolio at any given time.
At Dightman Capital we place our portfolio construction emphasis on determining which indexes should be included and how much weight each one should represent in the portfolio versus which mutual fund or seperate account manager is going to beat their investment benchmark this year (most don't, and those that do rarely repeat).(1)
(1) Journal Of Financial Planning, “The Difficulty of Selecting Superior Mutual Fund Performance” February 2006 |