Why I default to index funds
A short note on the case for low-cost, broad-market index funds as the default vehicle for most of a portfolio.
For most people, picking individual stocks is a losing game once you adjust for time, taxes, and emotional cost. Index funds win by default for three reasons.
Costs compound
Active funds in the US average somewhere around 0.6–0.8% in expense ratios. A broad index fund is closer to 0.03%. Over 30 years that gap compounds into a meaningful share of the final portfolio.
You’re not better than the market
The historical data on active management is pretty unkind: roughly 80–90% of active US equity funds underperform their benchmark over 15-year windows. The probability that I am in the top decile of stock pickers is small, and the probability that I can identify the top decile in advance is smaller still.
The math
A simple way to think about it:
final_value = principal * (1 + r - fee) ** years
A 0.7% annual fee shaves roughly 20% off a 30-year terminal balance for the same gross returns. That’s the entire equity premium for some years.
What this isn’t
This isn’t an argument that markets are perfectly efficient, or that no one can beat the index. It’s an argument that for the median investor — including me — defaulting to the index is the highest-EV move, and any deviation should clear a high bar.