Edit:The primary benefit of indexing is that it provides an easy means to achieve a high level of diversification at low cost. That’s a powerful benefit. Those who suggest that indexing is the only rational way to invest (this includes John Bogle, founder of the Indexing Revolution) discredit indexing in the long-term by trying to make indexing something that it can never be.
Indexing is not the only rational way to invest. Picking individual stocks or investing in mutual funds makes all the sense in the world for investors with the time and skill needed to succeed at those investing approaches. Indexing is a great option for those of us who are not yet well-informed on what it takes to pick stocks or funds effectively or who just do not have the time to engage in the research work required to do so.
There’s not a thing wrong with being a pure indexer your entire life.
The Valuation-Informed Indexer does not research stocks. He buys the S&P index (or some other broad index). How then does he avoid the terrible returns that the market as a whole has always dished out in the wild bear markets that inevitably follow in the wake of wild bull markets? He lowers his stock allocation at times of high valuations, putting the money into super-safe asset classes like Treasury Inflation-Protected Securities (TIPS), IBonds, or certificates of deposit (CDs)
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