Final answer:
The goal of an Investment Advisor using an indexing strategy is to mirror the returns of a market index, providing a passive investment that offers protection against inflation and align closely with market performance, particularly suitable for long-term investors like retirees.
Step-by-step explanation:
The goal of an Investment Advisor (IA) when using an indexing strategy is to replicate the returns of a particular market index. By tracking an index, an IA aims to provide an investment that reflects the overall behavior of the selected stock market, housing market, or other tangible assets that can generate financial returns through capital gains or, in the case of housing, offer a nonfinancial return such as a place to live.
Indexing can also make investment returns more predictable and reduce the concern over inflation. For instance, products like indexed bonds are designed to offer a real rate of interest that is above the rate of inflation, ensuring that the return surpasses the erosion of purchasing power that inflation typically causes. This approach can be especially comforting to investors like retirees who need to plan for the long term and are concerned about the risk of inflation impacting their investments.
Therefore, an IA leveraging index funds seeks to offer investors a passive and diversified investment that aligns closely with market performance, often at a lower cost compared to active management, while also offering some protection against the effects of inflation.