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Can an index fund ever recover from management mistakes like this?

The problem with your example is that it doesn't take into account capital gains distibutions that lower the fund's NAV, but if they are reinvested, don't affect the overall return.

I believe that SVSPX is significantly less tax efficient and has had some unusually large CG distributions, which affects the chart. If you look at their total return I think you'll see that it follows the index pretty well.

Outside an IRA, the capital gain distribution history of a fund is very important, and should be considered. Inside an IRA it doesn't make a bit of difference.

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