January 22, 2014

What is the difference between a managed mutual fund and an index mutual fund? Which one is best? Why?

3 thoughts on “January 22, 2014”

  1. Chris says:

    A managed mutual fund has an active manager doing day to day trades which will have a high fee (expense ratio) attached to it. An index fund is just the opposite. They are not as flashy as the active mutual fund, but in the long run you will make money and pay very little to do so. Warren Buffet and John Bogle would advise going with the index fund any day.

  2. Karen says:

    A managed mutual fund is handled by a person who actively tries to outperform similar funds using his/her own opinions along with research. An index mutual fund simply tries to track performance of a target market index and holds all their funds within that target group. Index funds have an advantage because of lower costs.

  3. Mike Finley says:

    Well said. Your answers were delivered seconds apart! Let’s recap.

    A managed mutual fund relies on a “smart” manager to pick and choose the “right” investments as you attempts to beat the market (benchmark index). This is called reaching for alpha as you hope to beat the passively managed index approach. Does it work?

    A small portion of the time and that small portion becomes even smaller as time goes rolling along. Here is a simple question. Would you lay your money down on a bet that pays out 80% of the time or 20% of the time? Stupid question, right? When you select the 20% payout you are choosing managed mutual funds run by “smart” people. Don’t do it!

    Select index funds and play the odds while you keep your yearly costs incredibly low. The research tells us this approach has worked very effectively over the last 90 years or so. Still not sure? Listen to this guy, he might just know a little bit about the investing business: http://www.youtube.com/watch?v=idr6c8NHuWs.

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