Over the last few years, indexation and passive investment management strategies have become very popular in the media. Unfortunately, they remain poorly understood by the large majority of investors.
Over a full twenty-three years, the FTSE RAFI Canada Index outperformed the S&P/TSX Composite Total Return Index. While you cannot invest directly in an index, you can invest in a fund that tracks an index.
Before fees, $10,000 that tracked the Canadian Fundamental Index would have grown to $176,915 whereas the same $10,000 that tracked the S&P/TSX Composite Total Return Index would only have grown to $78,991.
$10,000 invested in the Morningstar Canadian Equity Fund Average Index would only have grown to $62,386. However, it should be noted that this index is NET of fees, unlike the previous two. Having said that, the cost of tracking the passive indices is a fraction of the difference in performance.
