Stock Indexes Are Changing. Is Your Portfolio Prepared? | The Informed Investor 48 Video
The Informed InvestorShow Notes
Episode 48: Does "index reconstitution" help or hurt everyday investors? The phrase refers to periods when stock indexes are rebalanced—when stocks are added to or dropped from an index (like the S&P 500 or Russell 2000 Index), often annually, semiannually, or quarterly. If you own index funds, which attempt to track the returns of indexes, reconstitution events may take a hidden bite out of your returns. The problem is that index funds tend to buy and sell the same things when index providers reconstitute their indexes, creating a massive demand for liquidity that can reduce value for investors. Research by Dimensional shows that average daily trading volume for stocks added or deleted tends to rise 20x to 50x higher over the following days and weeks. https://www.dimensional.com/us-en/insights/measuring-the-costs-of-index-reconstitution-a-global-perspective This process typically begins when index providers publicly announce changes ahead of time. Sophisticated traders such as hedge funds will get ahead of these trades, acting as liquidity providers to index funds. This typically pushes prices up before index funds buy and down before they sell. As a result, index fund managers systematically buy high and sell low, cutting into performance for both the index fund and the index itself. But these trading costs are not reflected in the fund expense ratio, and they affect both your investment and the index, creating a hidden cost for investors. Another potential cost of reconstitution is what's known as style drift. This phenomenon occurs when a fund's holdings drift from the targeted objective or asset class—often due to infrequent rebalancing. While the characteristics of individual stocks evolve every day, holding a stale roster of names due to infrequent rebalancing may lead investors to miss out on opportunities for outperformance. Fortunately, everyday investors don't have to settle for the hidden costs and the lower return potential tied to index reconstitution. In Episode 48 of The Informed Investor, Dimensional's Mark Gochnour, Head of Global Client Services, Rob Harvey, Co-Head of Product Specialists, and Jake DeKinder, Head of Client Communications, explain how index reconstitution events impact your investment opportunities and what investors can do to help minimize the potential costs. LINKS FROM TODAY'S EPISODE: Subscribe to the Stay Calm Investing Newsletter https://www.staycalminvesting.com/newsletter The Informed Investor: Feedback Survey https://www.dimensional.com/us-en/informed-investor-survey "The Informed Investor" on YouTube [update with live link] Dimensional Fund Advisors Shorts on YouTube https://www.youtube.com/@dimensionalfundadvisors/shorts Mark Gochnour on LinkedIn https://www.linkedin.com/in/mark-gochnour-9a23598a/ Rob Harvey on LinkedIn https://www.linkedin.com/in/robkharvey/ Jake DeKinder on LinkedIn https://www.linkedin.com/in/jake-d-4105b98/ Learn more at https://www.dimensional.com/
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Episode 61: The allure of index funds, such as broad diversification, low costs, and market-matching returns, may seem undeniable. But recent "reconstitution" in the indexes tracked by such funds tells a different story—one every investor should understand.
Episode 60: Every two years, millions of investors probably ask themselves (and their advisors) whether looming elections demand changes to their investment portfolios. It's an understandable sentiment—and one that demands discussion. But the most important conclusion from these conversations should never change: Since the data doesn't show any strong connection between election results and stock market performance, it's best to vote with your ballot, not your portfolio. No matter how you slice, dice, or take a hatchet to the data, factor in your own political proclivities, or scream about what you think is totally wrong or right about the candidates, market prices have already incorporated all that information (and thousands of other developments, including numerous economic indicators) as investors consider what to do next. This is a well-researched theory of how capital markets work. The implication is that the stock market doesn't really care what you think about this year's midterm elections or the next presidential horse race. Need supporting evidence? Fourteen of 17 presidential terms since 1929, across administrations with both Democratic and Republican chief executives, ended with positive returns for the S&P 500 Index. (S&P data © 2026 S&P Dow Jones Indices LLC, a division of S&P Global.) Investors shouldn't ignore elections, of course. But their portfolios may benefit from standing pat as politics rile and emotions rock and roll. In Episode 60 of The Informed Investor podcast, Dimensional's Mark Gochnour, Head of Global Client Services, Wes Crill, Senior Client Solutions Director, and Jake DeKinder, Head of Client Communications, interrogate common myths about the impact of elections on markets and offer sensible answers as investors head to the polls. LINKS FROM TODAY'S EPISODE: "Stay Calm: Learn to Embrace Uncertainty in Investing and Life" Order the new book by Dimensional Founder David Booth https://www.amazon.com/gp/product/B0GPDHGH8K/?maas=maas_adg_2F97289929AB0BA26D806A1F81D55D66_afap_abs&ref_=aa_maas&tag=maas&smid=ATVPDKIKX0DER Subscribe to the Stay Calm Investing Newsletter https://www.staycalminvesting.com/newsletter?utm_source=youtube&utm_medium=organic&utm_campaign=informed_investor The Informed Investor: Feedback Survey https://www.dimensional.com/us-en/informed-investor-survey?utm_source=youtube&utm_medium=organic&utm_campaign=informed_investor "The Informed Investor" on YouTube The Informed Investor - YouTube Dimensional Fund Advisors Shorts on YouTube https://www.youtube.com/@dimensionalfundadvisors/shorts Mark Gochnour on LinkedIn https://www.linkedin.com/in/mark-gochnour-9a23598a/ Wes Crill on LinkedIn https://www.linkedin.com/in/wes-crill-77a49417/ Jake DeKinder on LinkedIn https://www.linkedin.com/in/jake-d-4105b98/ Learn more at https://www.dimensional.com/?utm_source=youtube&utm_medium=organic&utm_campaign=informed_investor For US audiences: Select videos are available as part of an opportunity for CFP® and Investments & Wealth Institute® professionals to earn continuing education (CE) credits https://www.dimensional.com/financial-professionals/ce-credit-experience-d360?utm_source=youtube&utm_medium=organic&utm_campaign=informed_investor
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