Unit 3 · Level 1 · Index investing
Review: Index power
The unit in three beats: an index is a list with a score, like the S&P 500's 500 US giants or the MSCI World's roughly 1,500 companies across 23 developed markets. Most professional funds trail those lists over long periods, so copying the list cheaply is a winning move, not a lazy one. And since fees compound just like returns, cheap and broad beats clever and costly surprisingly often.
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What you get asked
Which statement about indexes is TRUE?
Index = the measuring stick; index fund = the copy you can actually buy. Keeping those two straight makes every fund factsheet clearer.
Over long periods, the large majority of ___ funds end up trailing their index.
Skilled managers, tough competition, yearly fees: the arithmetic grinds most active funds below their benchmark over 10-15 years.
Match each concept to its role in the index story
List, opponent, villain, solution: the whole unit in four matches.
Two funds track the SAME index: one charges 0.2%, the other 2%. Over 30 years, what's the likely outcome?
Same holdings, same market; the only difference is the yearly skim, and compounding turns that skim into a canyon. Roughly €72,000 vs €43,000 on a €10,000 start.
Your cousin wants 'something clever' for his first investment. What does this unit suggest?
Broad, cheap, and automatic outmatches most 'clever' portfolios after costs. Next unit: how to set this up in the real world. 🐜
The rest of this unit
Why buying the whole haystack beats hunting for the needle.