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Implementation

Once you have determined the optimal asset allocation for achieving your goal, it must be implemented. To best match the returns of the five asset classes, you should use an index strategy whenever possible. Many investors are hesitant to use an index strategy because they feel that they would be settling for an average return. This is a misconception. Over the long term, index funds beat most actively managed portfolios. This is because of the expenses and magnified psychological biases associated with active management. Indexing is an above-average strategy.

This section describes two different types of indexed investment vehicles: index mutual funds and exchange traded funds.


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