Toro
Diamond Member
Also, 7.25% may way over state actual returns given that the stocks in any index change; only for the better. A company going bankrupt or declining in importance will be removed from the index thus creating a 100% upward bias in the index that your personal portfolio will not have.
I understand that logic, but it is incorrect. Passive index funds have approximated the index return over time. The index represents all constituent parts. So when the constituent parts move in and out, the index return will be composed of the new constituents.
Here is the Vanguard 500 index, which mimics an index of the 500 largest companies in America. As you can see, the mutual fund is within a few basis points of the actual return of the index. The difference between the fund return and index return is due to trading and timing costs.
Vanguard - Vanguard 500 Index Fund Admiral Shares