For easy understanding

1. Index funds are cheap and great, but still have hidden trading costs.
2. Trading to match the index causes small but real losses.
3. Adverse selection: Funds buy when companies sell high.
4. Price impact: Funds buy stocks after prices jump up.
5. Mean reversion: Funds buy expensive stocks that later fall.
6. Hidden costs are often 0.3–0.8%/year, bigger than the fund’s official fee!
7. IPOs and index changes are common danger points.
8. Smart index funds can delay trading to reduce these losses.

Bottom line: Index funds are still awesome, but even they can get better!