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How to Pick a Passive Fund

On 04/23/2012, in Investment Strategies, by Jordan Wilson

For most investors, I recommend a passive investment approach.

Exchange traded (ETFs) and open ended index mutual funds that focus on cost minimization and accurately matching relevant market returns.

There are a plethora of ETFs and mutual funds available for investors. So how do you choose the best fund? 

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Index benchmarks for passive investment management are an ideal fit.

And quite easy to implement.

After all, with passive investing you are simply trying to replicate the market (as represented by the relevant index). So it is simple to find an index for comparative purposes.

But there are a few things to remember when benchmarking under a passive approach. 

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A goal of passive investing is to match the market return as closely as possible.

However, it is not a given that a passively structured investment will match the market. In fact, there may be material variations between different investments and the benchmark index.

Index funds (both mutual and exchange traded) are typical passive investments. Here is why they do not normally match their benchmarks.

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