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Sure, index funds can track any sort of index, and use any sort of weighting scheme. But modern portfolio theory dictates that truly passive investors should ho

Sure, index funds can track any sort of index, and use any sort of weighting scheme. But modern portfolio theory dictates that truly passive investors should hold two assets: the "market portfolio", and a "risk-free" asset such as Treasury bonds, or cash. As other commenters have mentioned, "index investing" is better referred to as "passive investing".

sandworm101 11y ago
I think the very term "indexed fund" is an artifact. Indexed funds need not be tied to an index. They can still be "passive investing" without the index. "Antitrust" is a similar linguistic artifact as you can violate antitrust rules without any mention of trusts,
- theseatoms 11y ago
  I agree we should get away from the term "index fund", but for better or worse, investors are hung up on indices. Why do we talk about the S&P 500? Why not 1k? etc. Don't get me started on the price-weighted Dow...
  - adestefan 11y ago
    We do. The S&P 500 is the classic index that tracked, but it's hardly the only one these days.
- justin66 11y ago
  > They can still be "passive investing" without the index. Are you referring to something other than quantitative funds?
  - sandworm101 11y ago
    Ick, a third overlapping term. I would call purely quant funds a form of indexed funds in that they follow a specific set of rules. Those rules are whatever procedure, computer program, or other non-human algorithm is used to pick investments. Whether or not a quant fund is passive investment is semantics imho. I wouldn't call spending hours/days/weeks examining a quant funds system a passive activity. And investors can move in and out of funds quickly these days. On the other hand many see passivity wherever investors or fund managers put buy/sell decisions in the hands of non-humans.
    - justin66 11y ago
      > Whether or not a quant fund is passive investment is semantics imho. You are talking about the meanings of words. That is semantics.

sandworm101 11y ago

I think the very term "indexed fund" is an artifact. Indexed funds need not be tied to an index. They can still be "passive investing" without the index. "Antitrust" is a similar linguistic artifact as you can violate antitrust rules without any mention of trusts,

theseatoms 11y ago
I agree we should get away from the term "index fund", but for better or worse, investors are hung up on indices. Why do we talk about the S&P 500? Why not 1k? etc. Don't get me started on the price-weighted Dow...
- adestefan 11y ago
  We do. The S&P 500 is the classic index that tracked, but it's hardly the only one these days.
justin66 11y ago
> They can still be "passive investing" without the index. Are you referring to something other than quantitative funds?
- sandworm101 11y ago
  Ick, a third overlapping term. I would call purely quant funds a form of indexed funds in that they follow a specific set of rules. Those rules are whatever procedure, computer program, or other non-human algorithm is used to pick investments. Whether or not a quant fund is passive investment is semantics imho. I wouldn't call spending hours/days/weeks examining a quant funds system a passive activity. And investors can move in and out of funds quickly these days. On the other hand many see passivity wherever investors or fund managers put buy/sell decisions in the hands of non-humans.
  - justin66 11y ago
    > Whether or not a quant fund is passive investment is semantics imho. You are talking about the meanings of words. That is semantics.