Concept
Index investing
Index investing is owning the whole market through a broad, diversified, low-cost fund rather than picking stocks, on the evidence that almost nobody beats the market over decades after costs and that the few who do cannot be identified in advance. Collins calls it the simple path.
Three properties make a broad index fund the right vehicle for an ordinary investor. It is diversified, holding hundreds or thousands of companies, so no single failure matters. It is low cost, and cost is the one thing you control: a fee that sounds tiny, one or two percent a year, compounds against you for decades and can consume a third of a lifetime's returns. And it is boring, so there is nothing to watch, trade or be clever about; the monthly order buys the same fund on the same day whatever the price, and the account is opened a few times a year. Collins wrote for an American reader with access to particular funds, and the product advice does not travel. The principles do: broad, diversified, low cost, bought monthly, held for decades, in whatever instruments are sensible where you live and in the currency your life runs on. That choice, and any tax question, is yours to research or take proper advice on; nothing here is a recommendation for your situation.
A real-life example
Elif, a teacher in Eskişehir, spent 2021 in a stock group on Telegram, bought what the group bought, and finished the year down while the index was up. In 2022 she moves her monthly amount to a broad, low-cost fund available through her bank, sets the purchase for the fifteenth, mutes the group, and checks the account three times a year.
How to use it
- 1Compare annual fees before anything else; over thirty years the difference is enormous.
- 2Buy the same broad fund on the same day every month, whatever the news.
- 3Research the instruments available where you live; take the principle, not the American product names.