Monday, March 30, 2015

Is Your Actively Managed Mutual Fund Performing Up to Par?

Is Your Actively Managed Mutual Fund Performing Up to Par?
When it comes to the stock market, the past six years or so have been pretty great. But according to a study commissioned by S&P Dow Jones Indices, if you own an actively managed U.S. equity-based mutual fund, more likely than not your portfolio hasn’t seen any measurable growth - or at least nowhere near what the stock market has actually returned.

I believe the study’s findings give investors who own actively managed mutual funds something serious to consider because, generally speaking, the whole idea – and for that matter, the purpose and selling proposition – for owning an actively managed fund (as opposed to their passive/index counterparts) is to get returns that are superior to what the market generates. Not to mention that you generally end up paying a bit more in management fees to own an active fund.

One cannot and should not lump all actively managed mutual funds together in such a generic manner. So I’m not suggesting that you shouldn’t get yourself one, or as many of them as you’d like if that is, in fact, what you believe will lead to your financial promised land. However, it is worth noting that to date there hasn’t been any definitive proof to the contrary that actively managed mutual funds generate superior returns, compared to index funds.

As an investor, you’ll want to make sure that if you’re going to pay a fund manager “extra money” to help you “beat” the market and get you far superior returns, that you do, indeed, end up getting your extra money’s worth. The findings of this study seem to be adding to the considerable body of evidence in favor of owning low-cost index mutual funds.
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