Skip to Content
Investing Specialists

5 Common Misconceptions About Index Funds

Clearing up confusion about tax efficiency, total costs, and whether every market segment can be effectively indexed.

Mentioned: , , ,

This article is part of Morningstar's Guide to Passive Investing special report.

The incredible surge in assets that passively managed products have experienced over the past decade has largely been chalked up to costs. Individuals investors are increasingly aware of the importance of expenses in improving their take-home returns; index funds and ETFs enable them to build well-diversified portfolios on the cheap. Advisors, too, realize that their clients are cost-sensitive: With only so much of the fee pie to go around, they figure that it's better to put investors in low-cost index funds so they can take a decent cut of their own.

Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.