Index funds are widely recognized for their ultra-low fees, making them an attractive investment option. However, while these low fees are beneficial, they are not the only consideration for investors.
The mechanics of index fund rebalancing can lead to significant hidden costs that often surpass the fees themselves. This suggests that while index funds are designed to mirror market returns, they may not always maximize investment outcomes.
A more flexible investment approach could potentially yield better returns for investors, though many are unaware of such options.
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Ben Felix, CIO at PWL Capital, explain why even great index funds have room for improvement. There are hidden costs to index investing from adverse selection, price impact, and mean reversion.
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