Where can we find investment products that are passive, represent entire asset class markets, and are low cost? It may seem a lot to ask, but fortunately such products exist and are called Exchange Traded Funds or ETFs.

ETFs are products sold by financial investment firms such as Vanguard and Blackrock that are bought and sold on stock markets around the world. Just as easily as you can buy a share of Apple Inc. stock (AAPL), you can buy a share of the Vanguard Total Stock Market ETF (VTI) or a share of the iShares 20+ Year US Government Bonds ETF (TLT).

Not only are such ETFs convenient to buy, they are also cheap. For example, at the time of this writing, the iShares TLT ETF charges an annual fee of only 0.15%, while the Vanguard VTI ETF charges only 0.03% per year.

Knowing what we know about the tyranny of costs, and knowing what we know about trying to beat markets, why would anyone ever pay a manager 2% per year to actively pick stocks when you can buy the entire American stock market in the form of an ETF for fifty times cheaper?