VERY SIMPLE YET VERY POWERFUL

The following quote is from Mike Pipers book "Investing Made Simple"
It is a simple expansion on Nobel prize winner William Sharpe's explanation of why index funds beat most other investors.

Why Index Funds Win: If the entire stock market earns, say, a 9% annual return over a given decade, and the average dollar invested in the stock market incurs investment costs (such as brokerage commissions and mutual fund fees) of 1.5%,  …then the average dollar invested in the stock market must have earned a net return of 7.5%.

Now, what if you had invested in an index fund that simply sought to match the market’s return, while incurring only minimal expenses of, say, 0.2%? You would have earned a return of 8.8%, and you would have come out ahead of most other investors. It’s counterintuitive to think that by not attempting to outperform the market, an investor can actually come out above average. But it’s completely true. The math is indisputable. John Bogle (the founder of Vanguard and the creator of the first index fund) refers to this phenomenon as “The Relentless Rules of Humble Arithmetic.”

Piper, Mike (2009-10-01). Investing Made Simple: Index Fund Investing and ETF Investing Explained in 100 Pages or Less (Kindle Locations 453-458). Simple Subjects, LLC. Kindle Edition.