"The Index": Should You Really Own It?

According to William Hester, CFA and Senior Financial Analyst at Hussman Funds:

"The shares of companies deleted from the S&P 500 have consistently outperformed those that took their place. Since the beginning of 1998, the median annualized return of all stocks deleted from the index and held from their exit date through March 15 [of 2010] was 15.4 percent. The median annualized return of all stocks that were added to the index was 2.9 percent."

Many pundits and advisors advocate "owning the index""--saves ya money, keeps ya diversified, takes the emotion out of investing...

The most popular ways to "own" an index in your portfolio is via an "index fund" or an "exchange-traded fund (ETF)". The most popular ETF is the SPDR S&P 500 (SPY). The second-most popular index fund is Vanguard 500 Index (VFINX or VFIAX).

Lots of people are missing a lot of opportunities by using just index funds. Especially those who are only using the S&P 500.