> But that won't stop your metaphorical Dad from swearing up and down you need to buy index funds....

The argument isn't that passive index investing is some kind of perfectly optimal investing strategy, it's that it's the most practical strategy for 98% of normal small, individual investors. If you don't have millions of dollars to invest, and you have a real job that prevents you from spending all your time researching investment opportunities, then you are probably better off just buying the market, instead of flailing around paying fees and trade commissions trying to beat the market.

If you believe in the weak form of the Efficient Market Hypothesis, and you are not a professional investor, then you should probably be in index funds.

Fees are the other key factor. Most investors are really using 401k accounts with captive choices, not a real broker with access to funds and free ETFs.

You're almost always better off with an index than the "HR Director Got a Kickback Growth Fund"

You seem to be misunderstanding the implication of anti-inductivity and/or the point of index funds. Anti-inductivity only holds that strategies that return better than average can't work when applied broadly. There is nothing that implies that a broadly-applied strategy can't give you the market average. Index funds are supposed to give you the average return, that's their objective. There is no reason to believe they won't continue to be successful in doing that (if everybody just invested in index funds, everybody would make the average return...)

You would think so, but this trading strategy is probably about 20 years old. So, "eventually" could take a very long time

Index Funds have been around for 40 years.

Bogle started the First Index Investment Trust on December 31, 1975. Bogle founded The Vanguard Group in 1974; it is now the largest mutual fund company in the United States as of 2009.

[ source : https://en.wikipedia.org/wiki/Index_fund#Origins ]

"Tracking indexes is 'big', and has some brute simplicity about it, but eventually the market will eliminate that as a viable investment mechanism."

I would like to know how.

The strategy is so passive that it will simply always follow the index. So in order to break it, the indexes themselves would have to break. I suppose it's not impossible, but it is very improbable.

Show me an actively managed portfolio that consistently beats an index fund and I'll believe it. Until then, you guys can pretend to have all the inside information you want, but numbers don't lie.

There are many private portfolios that "beat the market." Of course, you can extend the timeline or find myriad other ways to exclude them. It's very hard to be a hedge fund and beat the market because they do not have the luxury of sitting out poor market conditions.

I'm not suggesting "anybody can do it" but the study that concludes money managers underperform the market often gets stretched into "nothing beats index funds".

Renaissance technology.

Proof?

YAFFX

Anecdotally, I spend about 3 hours a week on financial research. I've averaged 13% returns since investing in high school during the 90s.

Nothing wrong with index funds, but the boglehead position isn't axiomatic.

Don't the top hedge funds consistently outperform the market?

Yes, the top funds consistently outperform the market. No, the top funds are not the same year-to-year. Predicting which funds will out-perform is the hard (aka impossible) part.

What percentage of the 11,000 hedge funds are you referring to?

http://www.cnbc.com/id/101955552

AKA the survivorship bias.

Don't be fooled by randomness and survivorship bias. Those aren't the same funds each year. Thousands of funds trying to beat the market at a seemingly-random game? A small few will get lucky.

How many years, and by how much?

I would be more interested in whether it will outperform in the future, and whether it will outperform before I start moving into more conservative investments. Given that I'm going to be around a while, consistent but middling performance will eventually outperform inconsistent great performance. I would hate to invest in a managed fund only to have it underperform for several years.