Why Indexing Works
The average Standard & Poor's 500-stock index fund returned about 18% annually over the past 10 years, vs. about 16% for the average equity fund.
Vanguard Index 500 Fund charges 0.18% of assets to cover expenses, vs. 1.45% for the average equity fund.
Index funds don't trade a lot, so they have low transaction costs and minimal capital-gains distributions.
To determine the S&P 500, a committee periodically replaces fading companies with up-and-comers deemed more representative of the overall economy.
Indexes contain hundreds of stocks, so they benefit when investors get bullish on an industry or mergers occur.
DATA: MORNINGSTAR INC., BUSINESS WEEK
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