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Personal Finance

A Bull Market in Passive Investing

More investors are turning to index-based investment vehicles, particularly in key categories.

The world has seen many changes over the past decade. In 2003 the Iraq War had just begun,  Facebook (FB) didn't exist yet, and Barack Obama was just an unknown state senator from Illinois. In the financial world passive, or index-based, investing represented a relatively small slice of the mutual fund market while active management--in which mutual fund managers hand-pick securities for their portfolios--was the dominant model.

Ten years later, the scales are tilting more and more toward indexing and away from active management, particularly in some key areas of the market. There are several reasons for the increased interest in indexing among individual investors. These include studies showing just how difficult it is for active managers to consistently beat indexes over the long term, increased cost-consciousness (index funds tend to be far less expensive to own than their actively managed counterparts, giving them a leg up on performance), and the proliferation of index-based funds and ETFs that offer investors who prefer passive management more choices than ever before.