why index, and why is it smart to index

To understand why it is a smart move to put you money into indexed investment vehicles you might be wondering what an index is.

To come to an conclusion regarding the type of fund you would like to invest it is important to understandone oftern overlooked aspect of fundinvesting:

The cost to run a fund are a important part of the result you are going to achieve when you decide to invest in a fund.
But no one is going to tell you about, unless you do your own thinking. Here are the facts:

the average mutual fund you can purchase in Switzerland takes 1.5% of your money a year for the running of the fund.
should you chose to invest in a index based investment fund instead the yearly cost of running the fund will be about 1% less per year. (1% difference any odd year might not seem like a lot, but over 30 years it makes one heck of a difference)
your chances of actually outperforming the market are slim, the longer the time horizon the worse the odds get.
the odds of finding the few outperforming funds are like playing the lottery, but then again, do you take you retirement saving to the lottery stall?

There is one more thing, just something small, but of quite some consequence:
once you have cleared the cliffs of indexing versus active management you will find that it is a mere technicality, since the future return of your portfolio is determined much more by the asset allocation you are choosing.

This does no lower the importance of using index based instruments, it becomes a simple no-brainer, as you can choose to give away 1%+ annual performance, or not…