Myths and Misconceptions About Indexing

“Despite the theory and publicized long-term success of indexed investment strategies, criticisms and misconceptions remain.” – Vanguard

Because low cost, indexed investing is considered so simple, many investors don’t realize that Vanguard regularly puts out terrific research pieces. Their latest, Debunking some myths and misconceptions about indexing, continues this trend.

The authors of the white paper go through the following five myths and back everything up with hard data as to why they don’t stand up to further inspection:

Myth #1. Indexing only works in ‘efficient’ markets.

Myth #2. Who wants to be ‘average’?

Myth #3. You get what you pay for – Higher cost + Higher ratings = Higher returns.

Myth #4. Market-cap weighting overweighs the overvalued.

Myth #5. Index funds underperform in bear markets.

I love this type of myth-busting data because far too many investors tend to follow rules of thumb based opinions and not the facts.

I’ve been looking at similar information and graphs for a number of years now that are just like the following one from this report, but this type of information never ceases to amaze me:


So 70-80% of index funds have outperformed their active fund counterparts in pretty much every single category and asset class over the past 10 years.

The consistency of these index fund ouperformance numbers over the years is one of the most impressive long-term track records in the business.

Read the entire Vanguard paper here for more:
Debunking some myths and misconceptions about indexing (Vanguard)

Subscribe to receive email updates and my monthly newsletter by clicking here.

Follow me on Twitter: @awealthofcs

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.