March 4, 2015 Admin | March 4, 2015 What is the primary reason active management fails when investing your money in mutual funds? Alternative?
4 thoughts on “March 4, 2015”
Active management fails when investing your money in mutual funds because you’re guessing when you should go out and when you should stay in. Instead, you should passively invest (invest every month, year, etc.) By passively investing, you aren’t trying to guess when you should be in or out; you’re always in.
Active managers are trying to beat the markets return by picking and choosing when to buy and sell, but because this is such a hard thing to do, very few of them are able to do it. An alternative would be to passively invested in things like index funds so that you are continuously ‘in’ the market and are matching the market’s rate of return.
Active managers charge an additional fee for their service which can not really be made up by their guesses at picking stocks, what active manager think will be good stocks may very well be quite poor stocks. Take NSMBC’s stock portfolio challange as an example. Of the 5 guys on thee who picked stocks the worse guy is down 11% and the best guy is up 6%. That is quite poor compared to the market as a whole over that time.
Well said everyone. Let’s review.
(1) Costs are the primary reason active management fails. This is why investing in index funds is so wise.
(2) You can cut your costs by 1% or more in most cases by moving away from managed funds and into index funds.
(3) Higher returns will follow. Awake to the possibilities!