Ever glanced at a list of different managed funds and wondered why some have remarkably low fees compared to others? Chances are, the ones with lower fees are index funds, also known as passive funds. Over the last couple of decades, index investing has become increasingly popular, with big players like Vanguard and Blackrock managing trillions of dollars in assets (as of 2022). Before we dive into the reasons and consequences of this trend, let's break down the two main investment styles: • Active Investing: Involves investment managers or private investors analysing securities, forming opinions on their value, and deciding which securities to include in the portfolio. Investors pay fees for the manager's expertise. Index Investing: Builds a portfolio to mimic an index, like the ASX200 or S&P500. Portfolio holdings mirror the securities and weightings of the relevant index. Changes to the portfolio occur during set intervals or due to events like mergers.
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