The Big Picture: Tom Rampulla
There are plenty of ways to invest. One of the easiest for retail investors is to buy an index fund. The return mimics the overall market. And these funds offer far lower fees than mutual funds.
This strategy works for a number of reasons. The biggest one is that most retail traders fail to earn a return anywhere near that of the market. That’s because they try to chase assets that have already risen in price. It’s a classic case of overpaying to get in.
The index fund industry was largely revolutionized by Vanguard, and its founder Jack Bogle. Index investing was slow to take off, as the lower fees made it a tougher sell from financial advisors.
But customers could see the benefits of lower fees, which lead to improved returns. That’s resulted in the entire industry cutting its fees, so that today some brokerages even offer free trading.
Vanguard’s strong and growing client base allows the firm to see how current trends can play out.
For instance, when investors panic out of stocks during a bear market, 30 percent of them never return back to investing in stocks. That leads to a tremendous loss of compounded growth over decades of potentially investing during much longer bull market periods.