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Investors should also understand that not all indexes are created equal. This means
that although two funds may both be "Small Cap" index funds, they may experience
dramatically different returns. For example, the S&P 600 and the Russell 2000 are the
two most popular indexes in the small cap space. In fact, 90% of investment funds
focusing on small caps use the Russell 2000 as a benchmark. Despite the popularity
of the Russell 2000, it has underperformed the S&P 600 by 1.9% a year on average
over the last 20 years. (1)
The lesson to be learned here is that investors should be conscious and careful about
investment fees, but this should not be the only factor influencing the selection of
funds.
2. Know What You Own and Diversify!
The number of funds you own is not an indicator of whether or not you are
diversified. I have often analyzed portfolios with a half dozen or more funds that were
extremely undiversified.
What truly matters with diversification is what your fund owns. If you own
multiple funds that are all buying the same thing, then you have a false sense of
diversification.
CHAPTER 2
INVESTMENT PRINCIPLES
"...investors should be conscious and careful about
investment fees, but this should not be the only factor
influencing the selection of funds."
(1.) https://www.barrons.com/articles/a-tale-of-two-indexes-1516896321
