5 Sexiest Things About Indexing

Last Updated Apr 11, 2011 2:42 PM EDT

Many investors think the thrill of the latest hot mutual fund or hedge fund makes them sexy products, while the lack of thrill in buying an index fund makes them boring. This might have something to do with the high expenses that come with the hot funds, which provides tons of cash to market their sex appeal. The best index funds, on the other hand, have no such marketing budgets.

Or maybe it just comes down to personal taste, and there's no shortage of choices - Coke or Pepsi, Budweiser or Miller, Ginger or Mary Ann. Personally, I find index funds very sexy, and I'm not alone. I once asked the Bogleheads, a group of very wise index fund investors, what they found sexy about indexing. Here are some of my favorites.
  1. It's sexy to know you will beat 99 percent of active investors. Over the long run, active investing has about a one percent chance of beating the low cost index investor. It feels great to be a master of the universe and to effortlessly beat the masses of investors who don't get the math.
  2. It's sexy to remain calm when the active investors are panicking. Active investors ran for the hills in late 2008 and early 2009, firmly believing that capitalism is dead. Being calm and collected has far more sex appeal than running with the sky-is-falling crowd.
  3. Having more money is sexy. Yes we do live in a material world and material wealth is considered sexy. Indexing gives higher returns, which translates into higher wealth, which allows more toys and fancier dinners. Let's face it, money is sexy.
  4. Looking younger is sexy. Worrying about whether your hot stock will go up, or whether your new money manager is going to live up to his beat the market claims, causes considerable stress and nothing puts the miles on like stress. The indexer doesn't need to worry about such silly things. Less worry equals looking younger. That's sexy.
  5. It's sexy to own the world. Active investors own a handful of companies, a few sectors, or maybe a few countries. An indexer who is doing it right owns nearly every public company across the globe. There isn't a place on the planet I couldn't find companies that I own. How many of the Forbes billionaires could make that claim?
So indexers own the entire world, have more money, are way cool, look young, and effortlessly beat the 99 percent of investors who just don't get it.

Decades ago, smoking cigarettes was cool. Today, not so much as it shortens your life and takes from your budget. Is active investing so different?

Who knows? One day it might be index investing that is the next shiny thing that is seen as sexy and cool. Check that comment - if everyone indexed, all of these advantages would go away. Maybe that's why indexers have such a lousy public relations campaign. Now I get it. Hey, did I mention that indexing is dull? Yep, dull as dishwater. GOLD - now that's the ticket!

Note: Photos from MysteryAutoIncome.com and StyleCEO.com

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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.

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