There is a lot of persuasive evidence that passive index investing is the best way for most investors to increase their wealth over time. I bought into the concept years ago – so why have I also bet on several individual stocks?

Index investing, where you track a major index such as the Standard & Poor’s 500 Index or the S&P/TSX Composite Index, doesn’t have to be an all-or-nothing exercise.

But if you agree that indexing is cheap and effective, bolstered with frequent studies that point to long-term returns that are superior to most stock-pickers, then buying individual stocks looks like a contradiction.

The indexing approach goes back decades.

In his 1973 book, A Random Walk Down Wall Street, Burton Malkiel said that small investors needed a way to buy all the stocks in the S&P 500 because the U.S. blue-chip index outperformed most experts.

I have an updated version of the influential tome – published in 2003, after Jack Bogle launched his First Index Investment Trust (now the Vanguard 500 Index Fund ) in 1976 and other index-tracking mutual funds and exchange-traded funds began to proliferate – where Mr. Malkiel takes a victory lap:

“Index funds have regularly produced rates of return exceeding those of active managers by close to 2 percentage points. There are two fundamental reasons for this excess performance: fees and trading costs,” the Princeton University professor wrote.

The rest of us might struggle with other reasons for our underperforming stock picks: We buy high, sell low, chase fads and look for tips among friends and online group chats.

Sometimes we get it right; often we don’t.

No wonder assets tied to index-tracking equity funds have risen steadily, and in the United States now exceed assets tied to actively managed funds.

Sure, some observers are concerned that the massive amounts of money flowing into passive investing strategies are now distorting the stock market, and perhaps creating a market bubble.

That’s because passive money doesn’t differentiate between overvalued and undervalued stocks; it buys both without thinking about it.

Still, it’s hard to argue with results.

According to S&P Global, which tracks fund performance through its SPIVA Scorecards, 65 per cent of all active large-cap U.S. equity funds underperformed the S&P 500 last year, which is fairly typical.

Most investors did better, in other words, by simply buying the index. Over the long-term, passive investing is a clear winner.

Equity and bond exchange-traded funds – or ETFs, which track indexes or sectors and trade throughout the day like stocks – account for about 75 per cent of my combined registered retirement savings plan and tax-free savings account.

So, I’m firmly on side with the indexing approach.

But, in an apparent contradiction, I also dabble in individual stocks, including Enbridge Inc., Brookfield Infrastructure Partners Ltd., BCE Inc. and Canadian National Railway Co.

I don’t compare the performance of these stock picks with a benchmark. But I’m pretty sure that for every long-term winner – Enbridge and Brookfield Infrastructure, for example – there’s at least one dud.

I’m currently nursing losses on BCE and CN, to name two sore points in my portfolio.

Yet, I persist with this sideline.

I have my reasons: I’m a sucker for out-of-favour stocks, such as CN, which I buy in the hope of a rebound.

I’m also attracted to stocks that pay big dividends and have a long history of regular distribution increases, such as Enbridge. I like the income, which I hope will help fund my retirement one day.

Perhaps my biggest reason for picking stocks: It’s fun.

There’s an element of risk here that I find enjoyable. It keeps me engaged with the market and market-moving news. And I often enjoy talking about stocks with friends and colleagues.

But am I beating the market? Probably not. And that’s fine with me.

How about you? Do you track indexes and also buy individual stocks? What are your reasons? Drop me a line at dberman@globeandmail.com.