Inscrutable index funds.

When investing passively, do so actively.

With the stock market's rise to heady heights in recent years, index funds--Wall Street's product du jour--have grown to gigantic proportions. As of October 4, 1999, according to the Wall Street Journal, 37.62% of the year's new mutual fund investment went into index funds--$44.59 billion for 1999 through August 30. So far it has been easy for investors to ride the wave of index funds. However, since the stock market's future is always uncertain, index funds are not immune to market fluctuations. Understanding how they operate and their cyclical nature may help CPAs better advise clients or employers about them. The specific investments in a portfolio are as important as how it is managed. Too often investors focus on results rather than on process, so drilling down into how an index fund is managed may yield some surprising revelations about active vs. passive investing.

SAFETY IN NUMBERS?

In trying to grasp th...

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