Investors who don’t index pay on average an extra 1 percent a year in trading costs and another 1 percent to what Warren Buffett calls “helpers”—the money managers, salespeople, advisers, and fiduciaries that permeate all areas of investing. As a result of these costs, active investors as a group trail the index by 2 percent or so, whereas the passive investor who selects a no-load (no sales fees), low-expense-ratio (low overhead and low management fee) index fund can pay less than 0.25 percent in fees and trading costs.
Like the point of view of all non-indexers acting as a single (very large) indexer who, by having much higher turnover, performs worse than the market and worse than indexers asa whole. So to be an active investor who beats an index fun, you either need to implement the index fund yourself (with lower expense ratio than the fund—is this even feasible as individual?) or beat the average active investor by 2%...and I wonder what percentile in the rankings of active investors you need to achieve to do that? Top 25%? Every year.
