Investment costs are a key driver of long term performance. The zero-sum game helps to explain why. The theory states that the aggregate holdings of all investors in a particular market form that market. At any time, half of the invested assets must outperform the average market and the other half must underperform it. Once costs are subtracted, though, it becomes increasingly difficult to beat the average market return.
This graphic helps tell that story. The zero-sum game provides a theoretical explanation for why costs are such an important influence on returns. It makes a case for keeping costs low regardless of whether you choose an index or an active strategy.
