The Index Revolution Why Investors Should Join It Now

The Index Revolution argues that active investing is a loser's game, and that a passive approach is more profitable in today's market. By adjusting your portfolio asset weights to match a performance index, you consistently earn higher rates of returns and come out on top in the long run. This book explains why, and describes how individual investors can take advantage of indexing to make their portfolio stronger and more profitable. By indexing investment operations at a very low cost, and trusting that active professionals have set securities prices as correctly as possible, you will achieve better long-term results than those who look down on passive approaches while following outdated advice that no longer works.

"Beating the market" is much harder than it used to be, and investors who continue to approach the market with that mindset populate the rolls of market losers time and time again. This book explains why indexing is the preferred approach in the current investment climate, and destroys the popular perception of passive investing as a weak market strategy.

• Structure your portfolio to perform better over the long term
• Trust in the pricing and earn higher rates of return
• Learn why a passive approach is more consistent and worthwhile
• Ignore overblown, outdated advice that is doomed to disappoint

All great investors share a common secret to success: rational decision-making based on objective information. The Index Revolution shows you a more rational approach to the market for a more profitable portfolio.

CHARLES D. ELLIS is one of the most widely respected experts in the world of investing. He is a consultant to some of the world's largest pension, endowment, and sovereign wealth funds. For three decades, he was managing partner of Greenwich Associates, the leading strategy consulting firm in institutional financial services world-wide. He has written 16 books and well over 100 articles, mostly on investing, is a popular speaker on key issues, and taught advanced courses on investment management at Harvard Business School and at the Yale School of Management and the investment profession's in-service workshop at Princeton.

He served as a Successor Trustee at Yale University and on the Yale investment committee for 16 years. He has served on the governing boards of the Stern School of Business, Phillips Exeter Academy, and the Robert Wood Johnson Foundation, and chairs the board of the Whitehead Institute. He has served on 14 investment committees. One of 12 people honored by the profession for lifetime contributions, he was chair of the CFA Institute.

Introduction xvii

Acknowledgments xxxvii

Part One Over 50 Years of Learning to Index 1

1 My Half-Century Odyssey 3

Part Two The 10 Good Reasons to Index 73

2 The Stock Markets of the World Have Changed Extraordinarily 75

3 Indexing Outperforms Active Investing 83

4 Low Fees Are an Important Reason to Index 97

5 Indexing Makes It Much Easier to Focus on Your Most Important Investment Decisions 125

6 Your Taxes Are Lower When You Index 147

7 Indexing Saves Operational Costs 151

8 Indexing Makes Most Investment Risks Easier to Live With 153

9 Indexing Avoids “Manager Risk” 157

10 Indexing Helps You Avoid Costly Troubles with Mr. Market 161

11 You Have Much Better Things to Do with Your Time 169

12 Experts Agree Most Investors Should Index 171

Appendix A: How About “Smart Beta”? 177

Appendix B: How to Get Started with Indexing 185

Appendix C: How Index Funds Are Managed 193

About the Author 197

Index 199

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