Indexing was first introduced in the United States in the early 1970s as an alternative to traditional active investing. Indexing is now a popular investment strategy for institutional and individual investors around the world. In Australia, index funds now exceed $120 billion or 10 per cent of the total investment management market. So, what does indexing offer?
Long-term performance history
Indexing has a proven long-term performance history in all the major asset classes. Historically, few active managers have been able to sustain above benchmark returns after costs over the long term. If you can't beat the index why not join it.
Past performance is not an indicator of future performance. Please note that index returns respresent those of the relevant index and are not the returns of our index funds. Click here for further information and assumptions.
Low costs
Indexing's 'buy and hold' approach can significantly reduce the cost of investing over time. This combined with low management costs means you can keep more of the returns you earn.
Tax-effective
Tax can potentially take the largest chunk out of your investment return so it pays to focus on your real return, after-tax. Because of its long-term nature, indexing takes advantage of capital gains discounts and the deferral of capital gains liabilities, which can improve after-tax returns.
Diversification
Index funds invest in all or most of the securities in an index, so they provide diversification. Diversifying across a range of asset sectors, industries and securities reduces market risk and can improve your performance potential.
Simplicity
It is very difficult to continually pick winners and outperform the market over the long term. Index funds take the guesswork out of investing by providing a low cost way to gain exposure to investment markets.
Index returns do not take account of any fees, expenses or taxes and assume the reinvestment of all income. Median manager returns are shown after standard fees and expenses but do not take into account taxes or rebates and assume the reinvestment of all income.
Data is sourced by Vanguard using Mercer retail survey data. Mercer was paid a fee for the survey results but Vanguard did not commission the survey.
Data based on a survey of between 14 and 51 funds, including Vanguard, depending on the asset class. The results would be different if more or different funds or rebates were considered. Index returns are based on the following i ndices:
- Australian Cash Funds: UBS Australian Bank Bill Index
- Australian Listed Property Funds: S&P/ASX300 Property Accumulation Index
- Australian Share Funds: S&P/ASX300 Accumulation Index
- Overseas Share Funds (Unhedged): MSCI World ex Australia Index
- Conservative (Moderate) Funds: Diversified Benchmark
- Growth Funds: Diversified Benchmark
- High Growth (Aggressive) Funds: Diversified Benchmark
