Managed Mutual Funds Underperformance
Why do most managed mutual funds underperform their benchmark indexes? What can you do about it?
Why do most managed mutual funds underperform their benchmark indexes? What can you do about it?
In the vast majority of cases, it comes down to cost (the expense ratio, loads, impact costs, commissions, turnover, etc). Yes, there will be some unlucky, inept and downright bad managers, but on the whole, it comes down to those yearly cost when we look at how badly they do in relation to the benchmark indexes they are compared to.
It’s like strapping a 20 pound rucksack to someone and telling them to run the mile. Little by little, they fall further and further behind. This is why no-load index mutual funds work. There is no 20 pound rucksack and as the race gets longer, the lead gets bigger. High returns go to those who own a portfolio of index funds that diversify you all over the world in stocks and bonds. Financial freedom to follow!