Passive investing vs. Active Investing
Comment from Oppenheimer Funds.
Indexing clusters investment assets in securities which represent past success, are widely owned, and often fully valued. Investing is about the future. Good active investors are adept at uncovering future success. Compounded over a long time horizons, the difference in so called “terminal wealth” can be very large between passive approaches, average active approaches, and above average active approaches.
Translation: Most indexes, like the S&P 500, represent the best performing stocks of the past, not necessarily the best ones to own in the future.