The case for index investing, and why the mathematics are more compelling than the marketing

Most investors spend their time trying to identify the next great company. A professor at Arizona State University spent years examining what that effort is actually worth and his findings should give anyone pause.

Hendrik Bessembinder analysed every US stock listed since 1926 up until 2022. His conclusion was striking: the majority of companies listed on the US stock market produce lifetime returns below those of a simple Treasury bill. Across nearly a century of data, just 4% of listed companies generated all of the net wealth created by the entire market.

Read that again. Four per cent.

What this means for stock pickers

The implication is not that markets are inefficient or that investing is futile. It is something more specific and more uncomfortable: if you are attempting to identify the winners in advance, the odds are structurally against you – not because you are not clever enough, but because the distribution of returns is so heavily skewed that even professional fund managers with dedicated research teams, access to company management, and decades of experience fail to beat a simple index fund consistently over time.

The rare companies that generate exceptional long-term returns – the Amazons, the Apples, the Novo Nordisks, the Nvidiase – are not identifiable in advance with any reliability. They look, in their early years, much like hundreds of other companies that go on to produce nothing.

The mathematical case for index funds

A broad, market-cap weighted index fund, such as one tracking the MSCI World or the S&P 500 – does something elegant: it holds every company in proportion to its size, which means it automatically holds the 4% of exceptional compounders without requiring anyone to identify them beforehand. It captures the full return of the market, less a small annual cost that in the case of modern index funds is now negligible.

Active fund managers, by contrast, must not only identify the winners, but they must do so consistently enough to overcome their higher costs. The evidence, across decades and across markets, is that they rarely do.

This is not an opinion. It is what the data shows.

What this means for expat investors in Switzerland

For internationally mobile professionals managing wealth across currencies and jurisdictions, the temptation to over-complicate is real. There are always reasons to hold a particular fund, a specific sector, or a concentrated position – a view on technology, or energy, or emerging markets.

The Bessembinder research is a useful corrective.

“The simpler the strategy, the more likely it is to capture what markets actually deliver.”

The more complex it becomes, the more opportunities arise for costs, behavioural error, and the wrong kind of activity to erode that return.

At Blackden Financial, evidence-based investing sits at the heart of how we construct and manage client portfolios.

• Not a forecast.
• Not a bet.
• A rational response to what nearly a century of data actually shows.

The bottom line

You do not need to find the next great company. You need to own all of them, cheaply, and stay invested long enough for the mathematics to work in your favour.

That is not a passive approach to investing. It is a considered one.

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Blackden Financial is a long-established, FINMA-licensed independent wealth manager specialising in advising internationally mobile, expatriate clients with complex cross-border financial planning needs.

We are entirely independent and purely fee-based.

If you would like to discuss how we construct and manage investment portfolios for clients in Switzerland and across borders, we would be happy to arrange a no-obligation discovery call.

Contact us on +41 22 755 0800, email info@blackdenfinancial.com or complete our contact form here.

One of our team will contact you and arrange a suitable time to discuss whether our service may be suitable for your situation and if so, how best to proceed, step by step.