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Active and Passive Indexing The first index fund began in 1971 with 6 million funded by Samsonite the luggage-maker Since then there have been many arguments of whether an active index fund or a passive index fund offers better long-term results for investors Index funds are already the fastest growing sector of the mutual fund business From 1986 to 1996 the amount of money invested in index funds grew from 556 million to 65 Billion And if anything individual investors have been slow to embrace passive management Institutional investors invest a far larger percentage of their assets passively Many individual investors are simply uneducated and unaware of the arguments and experimental evidence supporting passive management Institutional investors and academics have known for years many for decades that passive investing is extremely difficult to beat and that the majority of active investors will fail in their attempt to outperform the market Active indexers assert they can outperform the marketplace Passive index portfolios state they can mirror the performance of the indices Both have their good times and their bad times Active indexers raise cash in times of increased risk and instability while passive indexers remain fully invested This can be quite painful during times of large declines in the market Passive portfolios mirror the gains of the indices during roaring bull markets and eventually outperform the majority of active money managers who must remain diversified and who sometimes take on additional risks in an attempt to produce the performance and safety that they have promised their clients The evidence has piled up during todays bull market that the average dollar managed by active managers does not keep up with the market index Finally indexing is a way to avoid being blind-sided in certain areas of the marketplace Active management themes can easily find themselves on the wrong side of an investment There is a perception among investors that a strategy
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