TD Bank - Quantitative Capital

Indexing provides consistent and reliable performance relative to the chosen index. Many investors choose mutual funds with very good past performance records, only to see their future performance disappoint. If the mutual fund's investment style happens to be out of favour, weak performance may last for a year or longer. Investors often give up on the manager and turn to another fund with good past performance - and the cycle continues.

The advantages of indexing may be summarized as follows:

Consistency: Indexing ensures consistent, market-like returns, year after year.
Low Cost: Indexing costs less than active management, resulting in potentially higher net returns.
Performance: History has shown that over the long term indexing has resulted in above-average performance.

Indexing takes the frustration out of investing. It is not for those who want to make a "killing" in the market. It is designed for the patient, long term investor - the investor who wants consistent low cost market returns year-in and year-out.

As well, indexing frees investors to focus on asset allocation. Research has shown that getting the right mix of stocks, bonds and international investments explains, on average, close to 90% of portfolio performance.

For years, pension funds and other large institutional investors have recognized the advantages of indexing. Now all types of investors are discovering why indexing is one of the fastest growing investment styles in Canada.

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