What Are The Disadvantages of Index Funds?

Photograph of New York by John Fitzgerald

Photograph of New York by John Fitzgerald

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.