Five Reasons Why Index Investing Is a Smart, Simple Way to Build Wealth

For many South Africans, investing feels complicated and risky. However, it doesn’t have to be. Index investing offers a straightforward way to grow wealth without the need to guess which shares will rise or fall.

Here are five reasons why you should consider index investing.

It’s Not About Beating the Market – It’s About Being the Market

An index fund doesn’t aim to outsmart the market; it is the market. By tracking a group of shares, such as the JSE All Share or the S&P 500, index funds provide instant diversification at a very low cost. As legendary investor Warren Buffett put it: “The goal of the non-professional should not be to pick winners, but to own a cross-section of businesses that in aggregate are bound to do well.”

Simple, Reliable Strategy

Even Buffett's instructions for his family trust follow this approach: “Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.” This highlights how a simple, steady approach can yield positive results over time.

A Tried-and-Tested Formula

John Bogle, the founder of an investment firm, Vanguard, which created the first index fund, put it best: “Don’t look for the needle in the haystack. Just buy the haystack.” His advice emphasises the power of broad-based investment without overcomplicating things.

The Numbers Don’t Lie

A 2024 study by Morningstar, a financial services firm, found that only 25.5% of South African active equity funds, and just 3.9% of global equity funds, beat their index over 10 years. This illustrates how challenging it is for actively managed funds to outperform the broader market consistently.

It Works Over Time

While index investing may not seem thrilling, it delivers results. It rewards patience and consistency rather than luck. You don’t need to predict the market’s moves; you just need to stay invested and let time and compound growth work for you. Whether your goal is saving for a child’s education or your own retirement, it is a proven way of building capital.

Index investing strips wealth building back to its essentials. Instead of chasing hot tips or worrying about daily market swings, it offers a disciplined way to grow money steadily over time. By keeping costs low, staying diversified, and remaining invested through ups and downs, ordinary investors give themselves a far better chance of reaching long-term financial goals. It may not be exciting, but when it comes to building lasting wealth, simple and boring often beats clever and complicated.

This is not financial advice, speak to a financial advisor or someone you trust, and do your own research before making investment decisions.