Vaguely related question:
Do index funds, in practice, actually get returns that match the numbers people quote when they say "The S&P 500 returned X% over this time period"? After all, index funds have to actually go out and buy the stocks that are listed on stock indexes, which makes them subject to transaction costs, temporary fluctuations in supply and demand, and other issues that can cut into their returns. There are enough index funds that the mere fact of being chosen to be listed on an index can cause a stock's price to rise as index funds run out and buy the stock, and my brother's job at Goldman Sachs largely consists of finding ways to make money by exploiting the way market prices change in response to trades that index funds have to make. All this makes me suspicious that there might be a big difference between the returns earned by "The S&P 500" and by "Giant Bank's S&P 500 Index Fund."
Suggesting it'd better to buy the top 501 instead, to avoid the threshold effects.
Today's post, Investing for the Long Slump was originally published on 22 January 2009. A summary (taken from the LW wiki):
Discuss the post here (rather than in the comments to the original post).
This post is part of the Rerunning the Sequences series, where we'll be going through Eliezer Yudkowsky's old posts in order so that people who are interested can (re-)read and discuss them. The previous post was Failed Utopia #4-2, and you can use the sequence_reruns tag or rss feed to follow the rest of the series.
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