Chances are your actively managed mutual fund is disappointing you. You’d probably get better returns investing in an index fund that charges lower fees.
An index fund goes up and down with the index it follows. If it’s a large-cap growth fund, for example, it follows an index made up of large companies in traditionally high-growth sectors like tech and health care. A managed fund picks its own big growth companies. If it picks them well, it does better than an index fund. If it doesn’t, it does worse.
For a managed fund to stand out, all it has to do is perform better (or less poorly) than its related index. It doesn’t necessarily have to make a profit. For example, if the index falls 10 percent and the managed fund drops "only" 7 percent, that fund is considered to have done well.
It seems that the bar has been set pretty low, doesn’t it? Maybe we should set it even lower…
So far this year, in only three of nine categories have the majority of funds managed to beat their index. If you have invested in a large blend fund (blend incorporates both value and growth), a small blend fund, or a small value fund, congratulations. More likely than not, your fund is outperforming its related index. (More than 50 percent of these funds do.)
But if you have invested in a growth fund, your investment could be in trouble. Less than 30 percent of those funds are beating their index.
Does that mean you should switch to a large or small blend fund or a small value fund? No. These three fund categories are beating their indexes by a mere half-percent or less. It’s hardly worth the effort.
But when considering funds in the future, remember that the higher fees you pay for actively managed funds don’t necessarily get you better results when the market goes down. Index funds do just as well – or just as poorly.
[Ed. Note: Low risk and safety are two hot commodities in the investing world these days. ETR Investment Director Andrew Gordon can give you both - plus the best chance of profiting - in practically any market. Learn more here.]
Similar Articles:
- Add Some Leverage to Your Portfolio the Easy Way – You can find ETFs that cover just about any market ("spiders" cover the S&P) or sector…
- An ETF With a Bright Future – The world of exchange traded funds (ETFs) is ever-evolving. Nowadays, you can invest in a fund that …
- A Leveraged ETF for All Market Conditions – Most investors would agree that in tough economic times one safe haven is consumer staples. Companie…
- There Is More to Brazil Than Carnival – As the U.S. economy continues to struggle, investors are looking abroad for investment opportunities…
- A 2-Minute Drill That Could Save You Thousands – Professional investors got taken to the cleaners by the former head of NASDAQ, hedge fund manager an…
- When Will It Be Safe to Go Back in the Water? – One question keeps coming up when I talk to my friends and family these days: “How will I know when …
- Worth Their Weight in Gold – Everyone’s heard about oil going over $100 a barrel recently. Getting less publicity is the dramatic…