As most readers of this blog would be aware, we favour index funds as cost effective, tax effective investment alternatives. There is also a tremendous body of academic evidence that supports this style of investing.
Index funds are funds that, rather than try and pick and choose which companies are going to perform better than others, simply holds all the investments in an index.
So to the headline - when does an index fund outperform a direct share portfolio by $120,000 a year? For the answer we only have to look at Senator Santo Santoro, who lost his $120,000 a year job through inappropriate direct share holdings and the lack of appropriate disclosure.
I bet if he had his time again Santo would be choose the index fund investment approach - and would be so much better of because of it!