Mark Cuban’s Take on Index Funds vs. Active Investing
Billionaire Mark Cuban has been successful as an active investor. But for the average investor, he says index funds make more sense.
These funds give investors access to a diverse basket of securities and do not require them to understand the ins and outs of the financial markets. Read on to discover the benefits of investing in index funds.
Benefits of index investing
Index funds aim to replicate market indexes such as the S&P 500. That’s why they can be a great addition to your investment portfolio.
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1. Tax efficiency
Index funds tend to be more tax efficient than active funds as they do not involve a lot of buying and selling of securities. Active fund managers are constantly adding and removing securities from the fund, resulting in taxable gains, and sometimes short-term gains, which are taxed at a higher rate than long-term gains. Trade taxes can wipe out a reasonable portion of gross profits.
You’ll likely have to pay taxes on any gains when you sell the fund’s shares, but if you’ve held them for more than a year, you’ll be taxed long-term.
2. Low fees
Index funds often come with lower fees than their actively managed counterparts, since no Wall Street professional gets paid to identify the best stocks to add and remove.
You can find a number of index funds with similar (or better) performance than active peers with expense ratios as low as 0.10%. Morningstar found that the average cost of active funds was 0.59% in 2023 and 2024 compared to an average of 0.11% for passive funds.
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3. Performance
Passive funds are not only cheaper than actively managed funds, they also tend to perform better.
Just 33% of active mutual funds and exchange-traded funds (ETFs) in the US outperformed their average asset-weighted counterparts between July 2024 and June 2025, according to Morningstar.
4. Diversity
Although picking individual stocks can lead to high returns, you have to do a lot of research to find those opportunities and find the right time. Also, you are putting your eggs in several baskets.
Diversified funds spread your risk, giving you enough peace of mind that you don’t have to check your portfolio each day.
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What retirees should remember
Investing in an index can make sense throughout your life, but if you’re nearing retirement and want to take some risk out of the equity portion of your portfolio, it might be a great time to move from the individual stocks you own to an index fund.
Simple, cheap index funds make investing easy. They often make sense for investors who want exposure to broader markets and the ability to focus their time elsewhere.
