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I thought the whole point of "index funds" was that they are not "actively managed" by a human fund manager. They should just automatically track the index (wit

• pmiller2 6y ago
  Mostly. They aren't "actively managed" in the same sense as non-index funds. Humans need to make some decisions about what to include, and monitor to make sure things like tracking error are low and tax efficiency is high. This is not trivial, which is why index funds were not just some obvious concept that has existed forever, and why, when John Bogle articulated the concept in the 70s at Vanguard, tens of them didn't just immediately pop up. They're the type of object that looks very simple from the outside, and acts very simply, but, under the covers there's a good deal of stuff going on. It's kind of like how the steam engine is a very simple concept (in fact, the ancient Greeks invented a simple steam engine [0]), but, if you look at it at the very lowest level, you can't model how each individual water molecule contributes to the functioning of the whole. That's not to say index funds have emergent behaviors. Rather that they work internally in ways you, the investor, don't need to care about, because they're designed to have that fairly predictable and simple external behavior. Put another way: ever wonder why an index fund would need to have any management fee at all (i.e. why there's a nonzero expense ratio)? The reason is because they are managed, and you have to pay people to do that. --- [0]: https://en.wikipedia.org/wiki/Aeolipile https://en.wikipedia.org/wiki/Aeolipile