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Mark Zaifman's thoughts on money, global economic trends and politics

Index Fund Investing Just Got More Interesting

Mark Zaifman   |    Mon, Feb 28, 2011 @ 09:58 AM

fundamental-index-funds

As an avid John Bogle fan as well as a strong believer in the value of using low cost index funds for your core portfolio, these new kids on the block, fundamental index funds are, well - sexy!

As any fan of John Bogle would know, his esteemed leadership as the former head of Vanguard is one that has benefited investors worldwide. It was John Bogle that brought index fund investing to the masses.

His vision and dedicated consumer advocacy has helped millions level the playing field. He was a pioneer in fearlessly challenging conventional wisdom and going up against a deeply entrenched status quo.  John Bogle will always be a hero to me.

But let’s get back to fundamental indexing - the approach is very similar to Vanguard, but with a slight twist.

As Schwab’s website states, the advantages of Fundamental Index Funds are:

  • Innovative approach—Help potentially avoid overexposure to overvalued companies 
  • Smart investing—Offer low turnover, full market participation, immense investment capacity, and broad diversification 
  • Competitive pricing—Offer low fees, priced significantly lower than their respective Morningstar category averages
The Fundamental Index Approach

Today, over $40 billion is invested in this new type of index fund. From our managed investment custodian, Charles Schwab:

“Fundamental indexes use fundamental measures of company scale and success—sales, cash flow, book value, and dividends—to construct the indexes. These fundamental factors address the inherent bias of traditional indexes, which are based on market capitalization and can give too much weight to overpriced securities and too little weight to underpriced securities.”

“Schwab Fundamental Index Funds are passively managed and tracks the FTSE RAFI1 Index, which is based on the fundamental index methodology developed by Rob Arnott and Research Affiliates. Schwab is the exclusive equity mutual fund (non-ETF) provider of the FTSE RAFI Index Series in the United States.”

Increase Your Financial Intelligence

As with all investment information, and specifically this post, please do your homework and research before making any investment decisions. Fundamental indexing does not eliminate the risk of market losses.

If you’re like me and you LOVE using index funds, I believe you’ll find this new approach very exciting. 

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  photo of San Francisco Financial District by Eric Hunt