Indexing: A powerful, low-cost way to invest.
Index investing, sometimes referred to as passive investing, is typically done by investing in a mutual fund or exchange-traded fund (ETF) that aims to track a particular index. This type of investing strategy can be appealing if you don’t have the time or experience to research which specific stocks, bonds, or other investments you may want to include in your portfolio.
The advantages of indexing.
Index funds provide the benefit of diversification, and they tend to be cost effective and tax efficient. Investing in index mutual funds and index ETFs allows you to own multiple companies without regularly choosing which ones to buy or sell, and offers the following benefits.
Low fees
Expenses erode returns over time. There are fees associated with any investment. But over time, the fees you pay can really add up, which is why low-cost index investing can leave more of your money invested for growth.
The average actively managed mutual fund charges 0.49% in annual fees. The average index fund charges 0.06% in annual fees.¹
Expenses erode returns over time
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Low-cost index investing can leave more of your money invested for growth.View as data table, Expenses erode returns over time
The chart has 1 X axis displaying Years. Data ranges from 1 to 40.
The chart has 1 Y axis displaying Investment value. Data ranges from 55000 to 443822.
Chart annotations summaryYearsInvestment valueExpenses erode returns over timeLow-cost index investing can leave more of your money invested for growth.Before expensesAfter ExpensesPortfolio value510152025303540$0$200,000$400,000$600,000
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Information about the Low Fees chart
Click to expand the chart on how low-cost index investing expenses erode over time
Performance
By definition, index funds aim simply to track their benchmark indexes before fees and expenses. Actively managed funds may fall short of market indexes over time.² Over the 5- and 10-year periods ending December 31, 2022, the average active equity fund manager lagged the broader market, as represented by the Schwab 1000 Index®.
Average return of actively managed funds vs. Schwab 1000 Index
Bar chart with 2 data series.View as data table, Average return of actively managed funds vs. SwissFin 1000 Index
The chart has 1 X axis displaying categories.
The chart has 1 Y axis displaying Annualized return (%). Data ranges from 7.16 to 12.25.Annualized return (%)Average return of actively managed funds vs. Schwab 1000 Index7.16%10.34%8.95%12.25%Average return of actively managed fundsSchwab 1000 Index5 Years10 Years0%5%10%15%
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Tax efficiency
Index mutual funds and ETFs tend to have low turnover—meaning they buy and sell securities less frequently—potentially generating fewer capital gains.
Over time, returns lost to taxes add up. In this hypothetical example, $100,000 invested in an active equity fund would have lost over $9,000 more to taxes over 10 years compared to an index equity fund.
Tax efficiency
Line chart with 10 data points.View as data table, Tax efficiency
The chart has 1 X axis displaying values. Data ranges from 2013 to 2022.
The chart has 1 Y axis displaying values. Data ranges from 371 to 9521.Tax efficiency$371$823$1,371$2,030$2,818$3,756$4,866$6,176$7,716$9,521Additional returns lost to taxes2013201420152016201720182019202020212022$0$2,500$5,000$7,500$10,000
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Diversification
The spreading out of risk is a key tenet of investing. Mutual funds and ETFs, including index funds, can provide portfolio diversification. Some index funds provide exposure to thousands of stocks—or almost the entire investable equity universe.
Diversification spreads the risk of a portfolio. The more stocks in a portfolio, the lower the chance that one stock could cause a significant decline in portfolio value.
Diversification of stocks
Bar chart with 3 bars.View as data table, Diversification of stocks
The chart has 1 X axis displaying categories.
The chart has 1 Y axis displaying values. Data ranges from 17.5 to 30.Diversification of stocks30%22%17.5%Probability of losing money in a single year based on number of stocks owned5 stocks20 stocks40 stocks0%10%20%30%40%
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Access low-cost index funds and ETFs from an industry leader.
Since 1991, SwissFin has provided clients with new ways to access efficient, cost-effective, index-based investments.
- SwissFin Asset Management™ is the third-largest provider of index mutual funds.
- SwissFin Asset Management also holds $413.1 billion in SwissFin index mutual funds and ETFs under asset management.
- SwissFin has over 30 years of indexing experience—and the expertise to show for it.