This morning I noticed a reader was searching for disadvantages associated with index funds, so I decided to do a little internet searching to find some of the drawbacks, if any. As soon as one delves into this question, up pops the issue of passive vs. active investing. Here are a few resources I located that deal with the question – are there disadvantages to using index funds? I include index ETFs as part of the index fund family.
- The problem of how index funds are rebalanced is discussed in this link.
- Socially responsible investors lose control of what stocks are present in the portfolio.
- Which style of investing fits your personality – passive or active?
- No big gains. This seems to be one of the big concerns for those who advocate stock picking. The lack of flexibility is no longer an issue as index investors have a wide choice of investment options.
- This link discusses some of the advantages and disadvantages of using index ETFs.
Do your own search and you will find the drawbacks are quite limited.