3 ms·

What makes indexing worse in the short term?

• random_comment 10y ago
  Volatility, i.e. greater dispersion of returns in the short term. http://www.investopedia.com/terms/v/volatility.asp http://www.investopedia.com/terms/v/volatility.asp
• milesvp 10y ago
  To expand on random_comments mention of volatility. Volatility is a big deal. Stock markets can be expected to beat inflation by several percentage points over the "long run", but "long run" is often defined in economics as "greater than your life expectancy". So there's a chance that you'll have to pull money out before it has a chance to grow, or worse, after it's lost a lot of value. Generally you should avoid putting money into stock markets with anything less than a 10 year window unless you love risk. And you should never put your emergency fund in the stock market since stock market crashes and needing said emergency fund tend to be highly correlated, which means when you pull your money out, you are all but guaranteed to be selling low.
  • hyperpape 10y ago
    Hah, had my blinders on. I was trying to figure out how there was an argument for active investing in the stock market in the short term, not comparing against bonds and whatnot.