ETFs & Index Funds

An exchange-traded fund bundles many underlying holdings into one ticker that trades like a share. One purchase buys a proportional slice of everything inside it.

An index fund tracks a published benchmark rather than trying to beat it. Since no research team is being paid to pick holdings, costs are a fraction of active alternatives, and cost is the one variable in this whole field that is known with certainty in advance.

That certainty compounds like everything else. A 0.03% expense ratio against a 0.75% one is a 0.72 point annual headwind, which over thirty years on a $200,000 balance runs to tens of thousands of dollars before considering whether the active manager added anything. Buffett wagered a million dollars on that arithmetic in 2007 against a fund of hedge funds and collected in 2017.