This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Getting Index Weighting Straight

The argument over cap-weighted indexing vs. fundamental indexing rages on. And with the plethora of ETFs available employing either one, the debate appears to be an important one. However, most articles seem to add very little new information, leaving the central question yet to be addressed: Should you care?

Over the weekend, an article in The New York Times ably demonstrated what I'm talking about.

Indexing pioneer Jack Bogle is always quoted as saying something very negative, Jeremy Siegel and Robert Arnott are always quoted as saying something positive, but, of course, all three have some vested interest in their respective arguments. Bogle might be defending his legacy, and Siegel and Arnott are involved with investment products that fundamentally weight stocks into various indices.

As a quick primer, Bogle believes that weighting indices by market cap is the only way to go; other ideas tend to be faddish. Fundamental indexing constructs indices, and it weights the constituents using some sort of fundamental measure or blend of different fundamentals. Fundamental indexing is very new to the investing mainstream, whereas market-cap weighting is an old standby.

One luminary often quoted in these debates with seemingly no vested interest might be Burton Malkiel. He sides with Bogle, believing that cap weighting is the better way to go.

We can solve this issue right here, right now, for those of you who manage your own portfolio.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
CVX $110.29 0.00%
DON $86.19 0.00%
GM $37.11 0.00%
IJT $130.43 0.00%
JPM $63.24 0.00%

Markets

DOW 18,034.93 +208.63 1.17%
S&P 500 2,100.40 +19.22 0.92%
NASDAQ 4,994.6020 +62.7870 1.27%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs