New Year's Resolutions for Fund Investors

I will invest in index funds. Time after time, research has proven that index investing trounces active management -- always over the long haul, and usually in the short term as well. But for those of you who need a refresher, Vanguard has just examined the first 11 months of 2002 and found that index investing beat active management in seven out of nine categories. One category in which active management beat indexing -- large-cap value -- did so by less than 1.5 percentage points. (Remember what we just said about fees?) Active management in the small-cap value arena beat indexing by just over 5 percentage points.

Index funds are more tax efficient and cheaper, and they generally lock you into a broad and diverse array of stocks -- all good things. And that's exactly what you want to start the year with.