Being a journalist has spin-off benefits. Problem is, most of them are of dubious value. Over the years I’ve managed to amass a modest library of free books. I’ve snagged trips to exotic locations— some of them with landmines. Once I even got a free rectal exam while doing a story on health clinics.

But this past spring, I finally scored a genuinely lucrative benefit. In fact, it’s one that may well turn out to be worth a couple of hundred thousand dollars. While working on the MoneySense Seven-Day Financial Makeover (see the October 2008 issue), I became a convert to index investing and moved all of my savings — including my RRSP and my children’s RESPs — into what MoneySense calls Couch Potato portfolios.

If you’re a regular reader of this magazine, you’re familiar with the Couch Potato strategy. It consists of investing in three to five low-cost index mutual funds or exchange-traded funds (ETFs). These index funds get their name because they’re designed to passively track — or index — major stock and bond markets. By keeping costs low and diversifying widely, you earn higher returns than investors who look for hot stocks and market-beating mutual funds.

I have been writing for MoneySense since 1999, so I’ve been hearing about the supposed superiority of Couch Potato investing for a long time. And yet, for reasons I’m about to explain, I was slow to embrace the notion of index investing — or passive investing, as it’s sometimes called, to distinguish it from funds that “actively” try to beat the market. Instead, I kept sending a few hundred bucks a month to a series of financial advisers, who used it to construct a portfolio of half a dozen actively managed mutual funds. I paid an annual fee to the investment firm, plus a less visible management fee of about 2.5% on the funds themselves. In other words, I did the same thing that tens of thousands of other Canadian investors do every month.

That changed during the Seven-Day Financial Makeover. I was supposed to be there as a reporter, but I ended up getting a makeover of my own. Not that it was an overnight, road-to-Damascus conversion: even after a week of listening to the experts crow about indexing, I was still skeptical and wanted to know more. I spent weeks reading about the theory and practice of indexing, studying the math and logic behind it. In the end, my initial reluctance evaporated and I’ve embraced index investing with an evangelical zeal.

Let’s take a walk through the common objections to index investing — the same ones that prevented me from realizing its merits for so many years.

If indexing is so great, why isn’t everyone doing it?

We’re taught to believe that if something sounds too good to be true, it probably is. That’s usually great advice, especially in investing, where get-rich-quick schemes are inevitably scams.

But indexing is not a get-rich-quick scheme. It doesn’t promise anything magical. I used to raise an eyebrow at the claim that simple, cheap index funds could beat the vast majority of professional money managers. It sounded like an extraordinary boast — as though someone were selling a golf strategy that could beat most players on the PGA Tour. The difference, however, is that pro golfers routinely shoot under par, while most money managers fail at precisely what they’re paid to do, which is beat the market.

It’s not their fault: blame it on simple arithmetic. There are thousands of money managers out there and most of them are well trained and hard working. But you don’t need a PhD in math to know that the average manager, by definition, can’t beat the market average. Managers aren’t dumber than the market, they are the market. Expecting most of them to produce above-average results is a contradiction in terms — like expecting most kids in a school to have above-average grades.