Thinking about index funds

DEAR HARRY: My wife recently showed me a short article about a man named Charles Ellis who is supposed to be super-knowledgable about the stock market. He is a strong advocate of index funds. He contends that almost no one has been able to beat the market consistently over an extended period of time. Part of this is that all funds have expenses, but the actively managed funds have higher expenses. If this is true, why are there so many advisory letters that claim that they can select funds that beat the market consistently? They even show you a history of their superior performance. Help!

WHAT HARRY SAYS: I don't know much about Charles Ellis except that he has a solid reputation. He is in good company when he talks favorably about index funds. Perhaps their earliest and most famous advocate is John Bogle, the founder of Vanguard Funds. There is a good case for their philosophy, and both men have written extensively to prove their case. Those advisers who show you past results are selective about the period of time they show you. No one can beat the market all the time. No one - not Warren Buffett, not Peter Lynch. A portfolio of carefully selected no-load index funds is the way to go for most investors.


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