Index Investing For Dummies E-Book

Russell Wild

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch
• Veröffentlichungsjahr: 2009

Seitenzahl: 516

Beschreibung

A recommended, proven way to broaden portfolios and profits Recommended by finance experts and used extensively by institutional investors, index funds and exchange-traded funds (ETFs) provide unmanaged, diversified exposure to a variety of asset classes. Index Investing For Dummies shows active investors how to add index investments to their portfolios and make the most of their money, while protecting their assets. It features plain-English information on the different types of index funds and their advantage over other funds, getting started in index investing, using index funds for asset allocation, understanding returns and risk, diversifying among fund holdings, and applying winning strategies for maximum profit.

Leseprobe

Index Investing For Dummies®

Table of Contents

Introduction

About This Book

Conventions Used in This Book

What You’re Not to Read

Foolish Assumptions

How This Book Is Organized

Part I: The (Mostly) Nonviolent Indexing Revolution

Part II: Getting to Know Your Index Fund Choices

Part III: Drawing a Blueprint for Your Index Portfolio

Part IV: Ensuring Happy Returns

Part V: The Part of Tens

Part VI: Appendixes

Icons Used in This Book

Where to Go from Here

Part I: The (Mostly) Nonviolent Indexing Revolution

Chapter 1: What Indexing Is . . . and Isn’t

Realizing What Makes Indexing So Powerful

Turning common investing knowledge on its head

Playing tennis — poorly — with your investments

Making gains by avoiding mistakes

Not All Indexing Is Created Equal

Picking your level of market exposure

Knowing that indexes have various recipes

Selecting what works best for you

Becoming an Ultra-Savvy Index Investor

Investing with realistic expectations

Becoming an enlightened (and justmaybe rich!) index investor

Chapter 2: A Short History of the Index and Index Investing

The Dow Jones Industrial Average: Mother of All Indexes

The mechanics of the oldest existing index

Long-lasting popularity

Mama has a few shortcomings

The S&P 500: The Dow’s Undisputed Number-One Son

New generation, new mechanics

The S&P today (still) rules the indexing roost

Beyond the Dow and the S&P

Indexes of various shapes and sizes

Indexing gone amok?

Growing Numbers of Fund Companies, More and More Indexing Options

Indexing goes institutional

Eating crow, and creating new funds

Chapter 3: Why Indexing Works — and Works So Darned Well

Clocking Impressive Returns, Year after Year

Intermediate-term index fund performance results: Good!

Longer-term index fund performance results: Very good!

Indexing for Optimal Portfolio Leanness and Meanness

Keeping your costs to a minimum

Making your financial life more predictable

Allowing different — and distinct — baskets for your eggs

Smacking down Uncle Sam’s cut

Eliminating cash drag

Assuring greater transparency

Theoretical and Real-World Problems with Trying to Beat the Market

The average investor is very smart and educated

Market rigging is rampant

Chapter 4: Why Everyone Isn’t Indexing

Worshipping Wall Street

Hiding the fees on financial statements

Pumping short-term performers

Tuning In (Tuning Out) the Circus on Television

Making market calls

Headlining what’s hot

Patting themselves on the back

Delving Deep into the Human Psyche

Picking darlings, fixating on numbers

Keeping track of your own performance

Chapter 5: A New Era Begins: ETFs and Alternative Indexes

Expanding the Indexing Universe

Introducing the new kid on the block

Tracking indexes that you never knew existed

Tracking indexes that never existed before

Making Sense (or Nonsense) of the Old and New

Examining the tried and true

Grasping weightings and valuations

Introducing newer variations (and variations on variations)

Figuring Out Fundamental Indexes and Beyond

Promoting the uncertain with a positive spin

Getting even with equal-weighted indexes

Creating seemingly sociable screened indexes

Turning the world upside down with inverse indexes

Keeping hands completely off with unmanaged indexes

Say, can you really call this an index?!

Part II: Getting to Know Your Index Fund Choices

Chapter 6: The Basic Index Investing Components

Riding the Index Vehicle

Investing collectively through mutual funds

Putting your money into the more modern ETF

Facing off: Mutual funds versus ETFs

Spotting Rare Birds in the Index Investing Forest

Exchange-traded notes (ETNs)

Unit investment trusts (UITs)

Meeting the Major Index Makers

Standard & Poor’s

Dow Jones/Dow Jones Wilshire

Lehman Brothers

MSCI Barra

Russell

Getting to Know Some of the Secondary Teams

FTSE

Morningstar

Dimensional

WisdomTree

Chapter 7: Investing in Stock Indexes: Your Gateway to Growth

Understanding the Whys and Wherefores of Stock Investing

Distinguishing individual stocks from stocks in the aggregate

Separating the two kinds of risk

Appreciating past performance

Taking a cautionary approach

Investing in Stocks the Right Way

Choosing Wisely among Many Stock Index Funds

Home of the brave: Broad U.S. stock market index funds

Microsoft and McDonald’s: Large cap U.S. stock index funds

Small is beautiful: Small cap and micro cap index funds

C’est bon: Developed world index funds

A calculated risk: Emerging-market stock index funds

Value and growth: Slicing the cake with style funds

Energy, technology, health care, and more: Splitting the pie by industry sector

Exploring the Outer Limits of Indexed Stock Investing

Socially conscious stock index funds: Putting your money where your heart is

High dividend funds: Wanting cash in hand

Leveraged and inverse “indexing”: Taking a gamble

Chapter 8: Investing in Bond Indexes: Protecting Your Principal

Getting a Handle on What Bonds Are and Why You Want Them

Traveling into bondland

Recognizing the many different breeds of bond

Keeping your expectations realistic

Buying bonds for the right reasons

Banking on predictability

Entering the World of Bond Index Funds

Finding a good bond mutual fund

Buying a fixed-income exchange-traded fund

Mixing and Matching Bonds and Stocks with an All-in-One Index Fund

Choosing the static option

Considering the variable options

Chapter 9: Diversifying Your Portfolio with Commodity, REIT, and Other Indexes

Panning for Gold with Commodity Investments

Protecting your portfolio from storms

Assessing the commodity index options

Holding Property in Your Portfolio with Real Estate Investment Trusts (REITs)

Understanding the true nature of REITs

Choosing REIT funds that will work best for you

Knowing how much to invest in REITs

Investing — or Not — in Some Truly Unorthodox Indexes

Cashing in on currency quackery

Doing like the rich: Investing in private equity (sort of)

Making a preference for preferred stock

Covering calls with the buy/write index

Part III: Drawing a Blueprint for Your Index Portfolio

Chapter 10: Finding a Happy Home for Your Money

Knowing What’s Important and What’s Not

Sorting through apples and oranges

Allowing your specific investments to guide you

Choosing the Financial Supermarket That Best Meets Your Needs

The Vanguard Group

Fidelity Investments

Charles Schwab

T. Rowe Price

TD Ameritrade

Zecco

Dimensional Fund Advisors (DFA)

Other discount brokers

What, No Index Funds in Your 401(k)?

Rolling Over Your Retirement Plan

Chapter 11: Developing Your Broad Investment Goals

Understanding Asset Allocation

Setting basic parameters for a sensible portfolio

Viewing asset teamwork in action

Zeroing in on your optimal percentages

Determining How Much You Need to Have . . . and Save

Employing the 20x rule

Using retirement calculators

Understanding Monte Carlo simulations

Knowing the limitations of even the best retirement calculators

Chapter 12: Fine-Tuning Your Index Selections

Expanding Your Geographic Horizons

Considering correlation

Going regional, not national

Choosing Large and Small, Value and Growth Stocks

Sizing up the difference between large and small

Tallying up the difference between value and growth

Putting the Stock Side of Your Portfolio Together

Factoring in your personal connection to the markets

Adding up your options

Fixing Your Fixed-Income Side of the Portfolio

Reframing the reason for bonds

Zeroing in on safety first, returns second

Chapter 13: Mixing and Matching Passive and Active Investing

Using Active Strategies That Borrow from the Wisdom of Indexing

Seven rules for investing in actively managed funds

Ten actively managed funds that fit the bill

Spotting Irrational Despondency, and Tilting Your Portfolio Accordingly

Discovering the secrets of tactical asset allocation

Fine-tuning your portfolio tilting skills

Chapter 14: Making Your Final Investment Decisions

Making the Choice between Mutual Funds and ETFs

Tallying up your costs

Adding up your total numbers

Avoiding the itch to rapid trade

Planning to pay less in taxes

Deciding between Traditional Indexes and Fundamental Ones

Favoring a newer approach

Hugging onto the tried and true

Who do you believe?

Should You Time Your Entry into the Markets?

Taking the plunge

Living with your decision

Counting the Number of Funds You’ll Be Buying

Trading off diversification for ease and economy

Deciding between one index and many

Chapter 15: A Bevy of Sample Index Portfolios

Investing with Small Change: Choosing an All-in-One ETF

Sticking to the Simple and Easy

A sleek and sexy ETF portfolio

A sleek and sexy (mostly) index mutual fund portfolio

Formulating a More Complex Index Strategy

Going for glory: Building an aggressive index portfolio

Aiming for growth: Creating an aspiring but not too aggressive portfolio

Taking few chances: Erecting a (mostly indexed) portfolio with limited volatility

Your Personal Nest Egg

Looking over your financial situation carefully

Positioning your portfolio correctly

Part IV: Ensuring Happy Returns

Chapter 16: Buying and Holding: Boring, But It Really Works

Keeping Your Eyes Firmly on the Future

Disaster-proofing your portfolio

Ignoring the hoopla and hype

Rebalancing on a Regular Basis

Using the calendar to keep your portfolio on an even keel

Adjusting your portfolio on an as-needed basis

So which method of rebalancing is best?

Tweaking Your Allocations as the Years Go By

Bucking the common wisdom

Entering the golden years

Gauging Economic Trends

Considering price/earning (P/E) ratios

Noticing the interest yield curve

Respecting reversion to the mean

Noting Positive Changes in the Indexing Industry

Costs, costs, costs

Diversification opportunities

Chapter 17: Seeking Additional Assistance from Professionals . . . Carefully

Sizing Up Your Need for a Helping Hand

Assessing your knowledge and interest

Assessing your wealth

Asking Where the Money Comes From

Finding out how the advisor expects to be paid

Eliminating biases that could harm you

Using free services from a brokerage house

Sifting Through the Alphabet Soup

Looking up investment advisor John Doe, AAMS, AWMA, AFC, ETC

Checking for competency and criminality

Shopping for the Best Advisor in Town

Finding an index kind of guy or gal

Asking the right questions, and getting the right answers

Part V: The Part of Tens

Chapter 18: Ten Ways to Deal with the Temptation to Beat the Market

Turn Off the TV

Ask Yourself Who Is Doing the Pushing — and Why

Google the Past

Remember the Rule of Appropriate Benchmarks

Understand the Ratings Claims

Watch Out for Expiration Dates

Recognize Random Success

Pull Out Your Calculator

Recognize That Someone, Somewhere Is Betting Against You

Review the Facts

Chapter 19: Ten Ways to Screw Up a Perfectly Good Index Portfolio

Chase Hot Sectors

Take Inappropriate Risks

Invest in Nonsense

Pay Too Much to the Fund Company

Fail to Change with the Times

Put the Wrong Funds in the Wrong Accounts

Allow Yourself to Get Eaten Alive by Little Charges

Get Scared and Head for the Hills

Pay Too Much for Investment Advice

Obsess

Chapter 20: Ten Q & As with John Bogle, Father of Index Investing

Part VI: Appendixes

Appendix A: A Select List of Index Mutual Funds

Appendix B: A Select List of Exchange-Traded Funds

Appendix C: Helpful Web Resources for the Smart Index Investor

Index Investing For Dummies®

by Russell Wild, MBA

Index Investing For Dummies

Published byWiley Publishing, Inc.111 River St.Hoboken, NJ 07030-5774www.wiley.com

Copyright © 2009 by Wiley Publishing, Inc., Indianapolis, Indiana

Published simultaneously in Canada

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About the Author

Russell Wild is a NAPFA-certified financial advisor and the principal of Global Portfolios, an investment advisory firm based in eastern Pennsylvania. He is one of few wealth managers in the nation who is both fee-only (takes no commissions) and welcomes clients of both substantial and modest means. Wild, in addition to the fun he has with his financial calculator, is also an accomplished writer who helps readers understand and make wise choices about their money. His articles have appeared in many national publications, including AARP The Magazine, Consumer Reports, Men’s Health, and Reader’s Digest. He also contributes regularly to professional financial journals, such as Wealth Manager and Financial Planning.

The author or coauthor of two dozen nonfiction books, Wild’s last works, prior to the one you’re holding in your hand, were Bond Investing For Dummies (Wiley, 2007) and Exchange-Traded Funds For Dummies (Wiley, 2007). Before those, he wrote The Unofficial Guide to Getting a Divorce (Wiley, 2005) along with attorney Susan Ellis Wild, his ex-wife — yeah, you read that right. No stranger to the mass media, Wild has shared his wit and wisdom on such TV shows as Oprah, The View, CBS Morning News, and Good Day New York, and in hundreds of radio interviews.

Wild holds a Master of Business Administration (MBA) degree in international management and finance from the Thunderbird School of Global Management in Glendale, Arizona (consistently ranked the #1 school for international business by both U.S. News and World Report and The Wall Street Journal); a Bachelor of Science (BS) degree in business/economics magna cum laude from American University in Washington, D.C.; and a graduate certificate in personal financial planning from Moravian College in Bethlehem, Pennsylvania (America’s sixth-oldest college). A member of the National Association of Personal Financial Advisors (NAPFA) since 2002, Wild is also a long-time member and currently serves as president of the American Society of Journalists and Authors (ASJA).

The author grew up on Long Island and, after living in various places both in the United States and abroad (including France and Morocco), settled in Allentown, Pennsylvania where he lives with his two children, Adrienne and Clayton, along with Norman, the killer poodle. He spends much of his leisure time gardening, bicycling, rereading old Kurt Vonnegut novels, and whispering sweet little nothings in the ear of his partner, Brenda Lange, also a writer.

Wild’s Web site is www.globalportfolios.net. His e-mail is [email protected].

Dedication

To Dennis, who in 1981 sold me 100 shares of the soon-to-go-bankrupt Continental Illinois National Bank and Trust Company. You were my first (and last) stockbroker, Dennis, and you taught me everything I ever needed to know about stock-picking.

Author’s Acknowledgments

This is the third book for me in the Dummies series, and I’ve had the pleasure of working with the same great team each time. The team includes the very talented and pleasant Joan Friedman, project editor, and the gregarious and also pleasant Marilyn Allen, my agent. It also includes Stacy Kennedy, acquisitions editor, and a host of other really good editorial, production, and marketing people at Wiley.

New to the team, Ron DeLegge, publisher and editor of www.etfguide.com, was kind enough to do the technical editing, and he did it quite superbly. Check out Ron’s syndicated The Index Investing Show on radio or podcast: www.indexshow.com. You’ll find that I’m a guest on the show from time to time.

I’m very thankful to a number of smart and financially savvy colleagues, especially among my fellow fee-onlys of the National Association of Personal Financial Advisors (NAPFA), who provided helpful input and guidance. Several are quoted throughout the pages of this book.

Thanks, too, to the very helpful staff at Morningstar, especially Mark Komissarouk, and at the Vanguard Group, especially Rebecca Cohen, for sharing their excellent research.

And I’d like to give special thanks to John Bogle, father of index investing, for his enormous contributions to the science of finance, the contribution he’s made (indirectly only) to my own personal finances and those of my clients, and for so generously lending his time and expertise to this project.

Publisher’s Acknowledgments

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Introduction

So you want to be an index investor. Or perhaps you want to be a better index investor. This book is for you — but not for you and you alone. Even an index-investing agnostic has plenty of reason to read Index Investing For Dummies. You see, the lessons of index investing — lessons learned since the first index funds were introduced about 35 years ago — are extremely important to all investors.

Index investing — investing in entire markets or segments of markets, rather than trying to cherry-pick securities — is the financial world’s equivalent of Seward’s purchase of Alaska, Henry Ford’s horseless carriage, or milkshake-machine salesman Ray Croc’s little hamburger stand called McDonald’s. It is a stellar example of something that was expected by nearly everyone (including the alleged high wizards of finance) to be a miserable flop, and yet, by almost any measure imaginable, wound up a rave success.

This book explains why index investing has been such a rave success and, more importantly, how you can harness the power of index investing to work for you.

About This Book

By the time you have spent a few hours — pleasurable hours, I certainly hope — thumbing through the following pages, you’ll know a lot about index investing, even more than some professional investors. For right now, I’d like to bring home just a few of the virtues of index investing that will make reading this book more than worth your while:

Versatility: Index investing gives you the opportunity to build a portfolio that is well-diversified, extremely low-cost, and fine-tuned to your particular needs. Are you an aggressive investor looking for exposure to small cap stocks, real estate investment trusts (REITs), or commodities? Are you a conservative investor more content with blue chip stocks, U.S. Treasury bonds, or high-grade municipal bonds? It doesn’t matter. Indexing allows for all flavors of investment.

Profitability: Study after study shows that if you invest in index funds or predominantly index funds, your long-term returns are very likely to far exceed those of most of your neighbors’ with their actively managed mutual fund portfolios or individual stock and bond picks. In fact, the odds of an actively managed (cherry-picked) portfolio beating an index portfolio are extremely slim. (I know! I know! You’d think that picking cherries would give you cherry-like returns. Index investing, admittedly, can be as counterintuitive as taking a hot bath to cool off on a steamy August day.)

Taxability: Without any question, index investors who buy and hold their index funds (the preferred way to invest in indexes) pay far less to Uncle Sam than do those with mutual fund portfolios, or portfolios of rapidly changing stock holdings. That situation is almost certain to continue to be the case regardless of whether the Democrats or Republicans take control of the White House or Congress, or which football team wins this year’s Super Bowl.

Simplicity: You can build a portfolio of index funds that will keep you bobbing merrily along in good times and still stay afloat in bad times — and you won’t need anything more than this book to do it. In fact, you’ll be better off allowing your subscriptions to Easy Money magazine and the Fast Bucks financial newsletter to lapse. This book, a simple handheld calculator, and patience are about all you need to be a successful investor.

Ready for more?

Dummies books, such as this one, are written so that you can either plow through from beginning to end or, if you prefer, jump from chapter to chapter. Feel free to look though the index (yes, Index Investing For Dummies has an index!) for subjects of special interest.

Conventions Used in This Book

To help you cruise the pages of this book as smoothly as can be, I use the following conventions, probably familiar to all veteran readers of books For Dummies:

Whenever I introduce a term that is at all jargonish, such as, say, standard deviation or efficient frontier, the term is set (as you can clearly see) in italics. Expect to find a definition or explanation to quickly follow.

If I want to share some information that, juicy as it may be, isn’t absolutely essential to profitable index investing, I plop it into a sidebar, a darkish rectangle or square with its very own heading, set apart from the rest of the text. (See how smoothly this italics/definition thing works?)

All Web addresses appear in monofont; that makes them easy to find if you need to go back and locate one in a jiffy.

Keep in mind that when this book was laid out, some Web addresses may have been broken across two lines of text. Wherever that’s the case, rest assured that we haven’t put in any hyphens or other thingamabobs to indicate the break. When using one of those broken Web addresses, just type in exactly what you see in this book. Pretend as if the line break doesn’t exist.

What You’re Not to Read

Unless you’re going to be taking a test on index investing, you probably don’t need to know everything in this book. Sometimes, I include some fairly technical information that you don’t have to know in order to be a very successful index investor. Or I include some tangential info that you may find interesting but that won’t really affect your ability to be a successful index investor. In both cases, I tuck this material neatly into the sidebars. Feel free to stop and peruse them, or jump right past and keep moving with the main topics. It’s your choice!

Foolish Assumptions

If you’re just beginning your education in the world of investments, perhaps the best place to start would be Investing For Dummies by Eric Tyson (published by Wiley). But the book you’re holding in your hands is only a grade above that one in terms of assumptions of investment knowledge and background. I assume that you are bright, that you have at least a few bucks to invest, and that you know some math (and maybe a wee bit of economics) — that’s it.

In other words, you don’t need a degree of any sort or years of portfolio management to be able to follow along. Oh, and for those of you who are already fairly savvy investors, perhaps even skilled at building a portfolio of index funds, I’m assuming that you, too, can learn quite a bit by reading this book. (Oh, you know it all, do you? You may know that international stocks have limited correlation to the U.S. stock market, but do you know which kinds of international stocks have the lowest correlation, and so provide the most powerful diversification? You will after reading Chapter 7!)

How This Book Is Organized

Here’s a rough idea of what your eyes will be feasting on in the following pages, laid out juicy part by juicy part.

Part I: The (Mostly) Nonviolent Indexing Revolution

What is an index, and how did index funds — baskets of investments that attempt to track indexes — come to pass? Who were the key players, and what motivated them to swim against the strong stream of convention? In this first stop in our adventure, I guide you through a short history of indexing and walk you through the years to the present. You see how indexing has changed over time — in some ways for the better, and in other ways, maybe not. You get a better sense of what makes indexing such a potentially powerful investment tool and how to best wield that tool.

Next, you meet and greet exchange-traded funds (or portfolios): the latest (and in some fashions, greatest) way to build an index portfolio. An exchange-traded fund is something of a cross between a mutual fund and a stock, and as of this writing there are more than 700 of them to choose from.

If you have a great sense of curiosity, or a technical bent, this part ends with a discussion of the nuts and bolts of how indexes are actually constructed, and how that construction may make some indexes better foundations for investments than others.

Part II: Getting to Know Your Index Fund Choices

In the second part, this black-and-yellow book starts to get intensely practical. You get a full primer on the differences between the two major choices for index investing: the time-honored mutual fund and the newer and flashier exchange-traded fund. I introduce you to the major indexes on which so many of these funds are based, as well as some of the more obscure indexes. And we look at the people behind the indexes — the builders: who they are, and how much you can trust them.

I give you lots of examples of the different kinds of investments that are commonly indexed: stocks, bonds, and commodities. In each category of investment, you find popular index funds (both the best and the worst) compared, contrasted, and thoroughly evaluated. There’s a veritable smorgasbord of index funds out there, but do you know which are the healthiest pickings?

Part III: Drawing a Blueprint for Your Index Portfolio

Continuing along in the practical vein of Part II, this part is where I introduce the recipes for mixing and matching index funds to form the ultimate portfolio. (No, a single index fund probably won’t do it.) I talk about brokerage firms, where you’ll be housing your index funds. I talk about how many funds you’ll need and in roughly what quantity. I talk about what to do if you like the idea of index investing but don’t want to limit yourself entirely to index investing. (That’s okay, really! There’s not a law against it.) I show you how to build a “mixed-marriage” portfolio.

For dessert, I serve up some sample portfolio pies, examples of real portfolios using index funds, or primarily index funds, that you can use as models for your own well-tailored investing strategy.

Part IV: Ensuring Happy Returns

An index portfolio that’s just right for you today may no longer be appropriate a decade from now. Things change: your age (alas), health, income, expenditures, and number of kids in college, for example. A portfolio must change along with them. In this part, I outline what kinds of maintenance ensure a smooth-running, age-appropriate, profitable portfolio for years to come.

If you are a do-it-yourselfer, the information you garner in Chapter 16 is essential. If you prefer someone to hold your hand, Chapter 17 reviews the various kinds of financial professionals that you might engage — and those you are probably best off not engaging.

Part V: The Part of Tens

This standard feature in all For Dummies books rounds out your index-investing education with a couple of fun but practical lists, plus an interview with the undisputed Father of Indexing, and the man who probably knows more about it than anyone on the planet, John Bogle, founder of Vanguard.

Part VI: Appendixes

In this part, I provide handy-dandy lists of the major indexers and index fund providers, as well as very helpful resources for further information about index investing.

Icons Used in This Book

Throughout the margins of this book, you find cute little drawings in circles. In the For Dummies world, like in the cyberworld, these are known as icons, and they signalcertain notable things going on in the accompanying text.

Although this is a practical book, you also find some chit and some chat. Any paragraph accompanied by this icon, however, tends to be chitless and chatless — just pure, unadulterated practicality.

The world of index investing — although generally not as risky as some other kinds of investing — still provides plenty of opportunity to get whumped. Wherever you see the bomb, know that money can be lost by ignoring the adjoining advice.

Read carefully! This icon indicates that something really important is being said and is well worth reading twice to allow your noggin to soak it up.

Wall Street is full of people who make money at other people’s expense. Where you see the pig face, know that I’m about to point out an instance where someone (perhaps even someone calling himself a proponent of index investing!) may be digging his plump fingers into your pockets.

Where to Go from Here

Where would you like to go from here? If you would like, start at the beginning. If you’re mostly interested in, say, stock index funds, you are free to jump right to Chapter 7. Bond index funds? Go ahead and jump to Chapter 8. Commodities? Chapter 9. It’s entirely your call. Maybe start by skimming the index at the back of the book.

Part I

The (Mostly) Nonviolent Indexing Revolution

In this part . . .

These first five chapters guide you through the history of indexing from its advent through the modern era. You discover the reasons that index investing makes so much more sense than trying to pick cherries or time the markets. You come to understand why index investing was so controversial from the start — and probably always will be! You find out why the great, unwashed masses don’t index — and probably never will. (In short, they aren’t as smart as you are, and they are more susceptible to Wall Street’s propaganda and the silly ramblings of the financial press.) And you are brought up to speed on some recent changes in indexes and index funds that have really changed the nature of index investing forever — in some ways for the better, in some ways, for worse.

Chapter 1

What Indexing Is . . . and Isn’t

In This Chapter

Discovering the origin of the index fund

Appreciating the power of passive investing

Getting a glimpse at what makes indexing work

Avoiding the mistakes of the masses

Becoming a truly savvy index investor

When John Bogle started The Vanguard Group in 1974 and shortly thereafter introduced the first index fund available to the unwashed masses, the brokerage industry and financial press were less than supportive. In fact, the entire venture was slathered in mockery. “Bogle’s Folly,” it was called. “Un-American” . . . “A sure way to achieve mediocrity.”