Vanguard became famous for indexing, but index investors do not become as rich as my members do. What's worse is index investors have no idea how risky those funds can be. And risk is the enemy. Controlling risks is probably one of the top reasons you're investing in mutual funds in the first place. The big, famous Index funds at Vanguard have chronically underperformed over the last few years, exposing conservative investors to the worst risks of bear markets.

From 2000 to 2005, Vanguard's index funds were down a collective 13.3%. Meanwhile, our Vanguard "Best-of-the-Best" picks have beaten the indexes more than FIVE-TO-ONE for the last 26 years.

On average, our picks have returned 19.7% a year, while the indexes have trailed behind, returning just 12.6%. So if you put your faith in indexing, it's like deciding you'd prefer to be HALF as wealthy. (Be sure to check out: "Winning With Mutual Funds.")

But Vanguard knows investors who plunk money into an index become "passive." Their money goes "dead." And Vanguard never has to worry about these clients getting antsy.

Indexing Is a Great Business—But It's a Lousy Investment

Because many index funds have little value orientation, it means you're invested in lots of high-risk growth stocks, like tech and banks. These are often high P/E, very interest-rate-sensitive stocks. And with the Fed trying to continue the subprime crisis AND fight inflationary pressures, these stocks are taking a beating. Index funds are very vulnerable right now.

Vanguard has a slew of index funds with growth objectives, the 500 Index among them. But if you're looking for capital appreciation and you're indexing to get it, you're making a costly mistake, one that traps the average Vanguard investor time and time again and costs them up to 40% in profits year after year.

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