Copy trading vs index funds: an honest comparison

A low-cost S&P 500 index fund is the right default for most people, and any honest comparison has to start there: Vanguard's VOO charges 0.03% a year, requires no decisions, and simply tracks the market — enough to have beaten 89.5% of active US large-cap funds over the fifteen years to 2024, according to S&P Dow Jones Indices' SPIVA US Year-End 2024 Scorecard.

Copying a Pro Investor on eToro is a different kind of thing. It carries no management fee, and buys one person's portfolio rather than the whole market. Which one fits you turns on cost, how the portfolio is built, and whether you can verify the record.

Why this is not really a returns contest

Most "X vs index funds" comparisons line up two return figures and declare a winner, which is the wrong frame. The index fund's entire proposition is that it does not try to win: it accepts the market's return at rock-bottom cost, and that alone beats the large majority of professionals over time. So the question is never "which returned more last year" — an actively picked portfolio will often beat the index in some years and trail it in others — but "which product matches how you want to invest, and what you can check." The comparison below is about fit, not a scoreboard.

Which actually costs less?

Both are cheap, which surprises people who expect copying to carry a fee. A broad index fund costs a recurring fraction of a percent — 0.03% a year for VOO — with no per-trade cost inside a fund. Copying on eToro has no management or copy fee at all; you pay the spread on each trade and, in a rarely-trading portfolio, that is a small and infrequent cost. Cost, in other words, is close to a wash between these two. If cost were the only axis, you would flip a coin — so it isn't the deciding one.

So when does copying an investor make sense?

When you specifically want active selection, when you can verify the record, and when you can sit through the potential drawdowns. The first condition rules it out for anyone content with the market's return, which is most people. The second is non-negotiable and easy to check: a record you can inspect in full, benchmarked, with the bad years included, is the only kind worth following, and how to verify an investor's track record sets out the specific checks. The third is about temperament: a curated portfolio can fall harder than the index in a bad year, and following one only works if you don't sell at the bottom.

The bottom line

For many people, the index fund wins the comparison, and is the logical starting point for many investors. However, at some point there is usually a desire to diversify into other strategies, to hedge against market volatility, or simply to get exposure to other companies that are not in the index.

The actively managed portfolios available via eToro's copy trading can be a great starting point for that.