Do me a quick favor and paste this search into your web browser.

What Percentage of Active Mutual Funds Beat the Market Index?

You should find some or most of the following titles:

Index funds trounce actively managed funds: Study
90% of fund managers beat the market — but their shareholders don’t
86% active managers failed to beat market in 2014

Wading through the first page of results will be disheartening if your portfolio is mixed with active funds.

I like the last article on the first page the best:

“10 Reasons Why Brokers Don’t Like Index (not active) Funds” I’ll save you some time and skip to the end of the list…

No. 10: If you invest in index funds, there’s nothing in it for me.
This argument puts the naked truth on the table: The broker is not really working for you. A broker may say something like: “If you want professional guidance you have to buy a fund that compensates me with a commission or other fees.”

I think that’s backwards. If you want objective guidance that isn’t swayed by sales commissions, you should pay an advisor separately for advice on choosing the lowest-cost funds that will be best for you. Depending on your needs, you may pay a one-time fee for one-time recommendations or an ongoing fee for continuing advisory help.

Regardless of whether or not you pay a sales commission, when you buy an actively managed fund instead of an index fund, you will pay higher expenses as long as you own the fund. This is not a good way to pay a broker for investment advice — and most of the higher expenses you pay will not go to the broker anyway.
~ Paul Merriman

In other words, with actively managed funds, you pay a mutual fund manager to make trades that are supposed to beat the market. With every trade there is a fee for the investor. That fee gets paid to the mutual fund manager. In contrast, the index fund does not get traded at the whim of a manager; rather it simply tracks the index. With far fewer trades, there are far fewer fees, which of course means your investment grows quicker.

While this is just a quick Google search and not empirical evidence, the articles do comport with decades of research that seems to confirm the general tone of these answers. And having an answer to the question of what type of fund is better, index or actively managed, is key to creating a plan for your future that will give you peace of mind today.

So whether you are retired now or have 30+ years to go, here are the key questions that you should consider:

1. How do I know if I own active mutual funds?
2. If I do, how do I fix it?
3. My 401k only offers active funds, what are my best options?
4. Are index funds the answer or is there something better?

We’ll be answering these questions at our upcoming investor event on May 17th. We’d love for you to join us.

For more information about upcoming Investor Education Seminars, contact <a href=”mailto:kristin@cornerstonewealthpartners.com?Subject=Seminar%20question” target=”_top”>Kristin Faasse</a>  or Liz Trawczynski at (517) 853-5473.