Part 2/9:
To build a solid foundation for this discussion, it's crucial to comprehend what index funds are. An index is a curated collection of stocks intended to signify a market or segment therein, such as the S&P TSX Composite Index for Canada. Index funds aim to mimic the performance of these indices by investing in the same stocks they contain.
Index funds primarily fall into two categories: passively managed and actively managed. Passively managed index funds seek to replicate market performance with minimal fees, whereas actively managed funds attempt to outperform the market through selective stock picking and timing. The fundamental thesis of Felix’s argument rests on superior qualities of index funds, particularly the cost efficiency and growth potential over time.