Anabasis
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204Course · Practitioner

ETFs and Index Funds

The vehicle that changed household investing.

The Course

The index fund is the vehicle that changed household investing. This course treats it not as an ideology but as an engineering choice with tradeoffs — and teaches the Scholar to assemble a defensible core portfolio at institutional cost.

You will finish with a three- or four-fund core portfolio and a written case for the international allocation you chose.

Outcomes
  • 01

    Distinguish an ETF from a mutual fund.

  • 02

    Read a fund's fact sheet with skepticism.

  • 03

    Assemble a low-cost core portfolio.

Prerequisites
  • — 201 — Investing Foundations.
Pacing

1 week · ~3 hours.

  • IModule · ~1 hour.

    Passive investing, in principle

    Owning the market at cost.

    The case for indexing is arithmetic before it is empirical. This module lays out both.

    What You Will Be Able To Do
    • — State Bogle's argument in one paragraph.
    • — Explain why the average active dollar underperforms.
    • — Recognize the narrow cases where active still earns its fee.
    Why here

    The theoretical case decides the default; only then do you consider deviations.

    1. 01The case for indexingArticle12m
    2. 02Reading: Bogle, The Little Book of Common Sense InvestingReading25m
  • IIModule · ~1 hour.

    Vehicle mechanics

    How the ETF actually tracks the index.

    The ETF works because of creation and redemption. Understanding the mechanism explains everything from spreads to tax efficiency.

    What You Will Be Able To Do
    • — Explain creation/redemption.
    • — Compute total cost of ownership.
    • — Detect a mispriced ETF.
    Why here

    The mechanism is what makes the ETF the vehicle it is; without it the ETF would just be a mutual fund.

    1. 01Creation and redemptionVisuals8m
    2. 02Total cost of ownershipArticle12m
  • IIIModule · ~1 hour.

    Building the core

    A defensible three- or four-fund portfolio.

    The three-fund portfolio is the working default. Deviations from it require a written case.

    What You Will Be Able To Do
    • — Construct a three-fund core.
    • — Decide international allocation defensibly.
    • — State the case for or against factor tilts.
    Why here

    The core is where 90% of long-run return comes from. The rest is polish.

    1. 01The three-fund portfolioArticle12m
    2. 02Home bias and international allocationArticle12m
A Note from the Faculty

The right core is boring. Boring is the point.