Indexing Exposed: Passive Indices May Be More Active than You Think
1 CE Credit | 2 Videos (53 minutes total)
Many investors trust their investment portfolios to index funds for broadly diversified market exposure at a seemingly low cost, based on a belief that this so-called “passive” investing approach helps them avoid subjective investment decisions. However, many active decisions lurk beneath the surface of index funds—and at potential cost to investors. This session draws back the curtain on indexing to expose these active decisions, evaluates the incentives of the parties involved, and explores what Dimensional believes is a better way.
Learning Objectives
1. Understand the active decisions behind so-called “passive” index funds.
2. Evaluate the incentives of index providers and index fund managers.
3. Examine the potential hidden costs of how index funds buy and sell stocks.
4. Explore a time-tested alternative that helps investors go beyond indexing.
The Hidden Costs of Indexing’s Active Decisions
Recording Time Stamps
(02:38) Why Use Indexing?
(06:52) Active Decisions by Investors
(10:28) Making the “Cheaper” Choice
(17:41) Active Decisions by Index Providers
(27:05) Reconstitution Effect and Style Drift
(41:51) Active Decisions by Index Manager
Going Beyond Indexing: A Better Way to Invest
Recording Time Stamps
(03:26) Core Solutions
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