Experts tell us that a small number of carefully selected stocks – fewer than twenty – would nearly mimic the S&P 500 in terms of diversification and performance. That means you could buy just those stocks and never have to pay a fee for fund management.
Avoiding fees is a huge deal when it comes to lifetime earnings. Managed mutual funds have substantial annual fees. Even an index fund has a management fee. So does a SPDR. If you buy your twenty stocks and just sit on them, you avoid all of the fees while enjoying the same performance and diversification as managed index funds.
It wouldn’t be hard for experts to tell you which stocks to buy, and how much of each, in order to mimic the S&P 500. But you will have a hard time finding that sort of information because no expert has an incentive to produce it. Perhaps an author of some sort has produced it, but I haven’t seen it.
Obviously everyone can’t buy the same twenty stocks because they would quickly become overpriced. But there are many combinations of stocks that would give you the same performance and diversification as the S&P 500. All you need is a computer program that randomly spits out a different basket of stocks for each investor, so the buying gets spread around.
For the lack of that simple information, and the false believe that managed funds have some magic advantage, investors spend billions each year. Arguably, that makes it the most valuable information in the world.