DEAR HARRY: My father showed me an article about John Bogle (he's the guy who founded Vanguard Funds) in which Bogle once again promoted index funds. I have been an investor in no-load funds ever since I heard your favorable opinion at least 10 years ago. But I have never really understood why going for the "average" of a group (as you do in index funds) is better than going for a policy of beating the average. Don't we all hope that we can do better than the market average? Should I go for Bogle's advice, or should I look for the funds or individual stocks that have a good history and good prospects?
Harry Gross: Index funds make sense over the long term
WHAT HARRY SAYS: John Bogle did an in-depth comparison of the performance of index funds with actively managed funds. The indexes were better performers over the long haul. Part of this is their lower expenses. Sure, there have been some stellar performers that were ahead (Peter Lynch, for example), but they burn out. Remember, your choice of index funds may be for large segments of the market such as the S&P 500, or for much smaller segments of the market such as gold mining or oil companies. If you still want to try your hand, consider a separate "hunch fund" in which you use your judgment, or a speculation fund in which you set aside money to go for individual stocks. You might hit an Apple or you might get hit with a Facebook. For most small investors, Bogle still makes sense.
Email Harry Gross at harrygross@phillynews.com or write to him at Harry Gross, c/o the Daily News, Box 8263, Philadelphia, PA 19101.
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