Index investing boomed in the 1980s, when blue-chip S&P 500 stocks soared. But the concept waned in popularity between 1991 and '93, when smaller, non-S&P stocks were red-hot.
In the '91-'93 period, investors who trusted a portfolio manager to pick the "right" stocks rather than own a "passive" index portfolio of all the S&P stocks usually scored well: In 1993, for example, 61% of general U.S. stock funds beat an S&P index portfolio, according to Lipper Analytical.
But last year, as the market hit rough sailing, fewer than one-fifth of general U.S. stock funds beat the 1.2% "total" return of the Vanguard Group's S&P index fund, the largest and most famous of 40 such funds. And so far this year, the 5% total return on the typical S&P index fund far exceeds the 3.5% gain of the average U.S. fund.
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The Standard & Poor's 500-stock index closed at a record 482.55 on Tuesday, finally topping its old peak of 482.00 a year ago. The S&P's tortured climb to new highs, in monthly closes, except latest: