Fisher Investments on the Perils of Index Funds

Index funds have grown in popularity, but Fisher Investments believes that they are no panacea. In fact, Fisher Investments believes that there are many risks and pitfalls associated with index fund investing.

An index fund is a portfolio of investments designed to mirror the performance of a chosen index (such as the S&P 500 or the NASDAQ) in an investment product.

Fisher Investments believes investing in index funds is a form of passive investing—there is no active decision-making process, and almost no possibility of outperforming the individual indices they track. Investors are often lured into index funds mainly by low management fees and the desire to settle for average market returns.

Index funds can only deliver market-like returns. Index fund strategies generally park an investor's assets in multiple index funds to track myriad indices such as the S&P 500, Russell 2000 Value, Nasdaq, MSCI EAFE, Russell 2000, and so on. But picking the optimal index fund(s) and when is very challenging.