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Could you elaborate on why that is the best thing for most people? Because the evidence for "Mutual funds, in aggregate, underperform the market by precisely w
by patio11 14y ago
Could you elaborate on why that is the best thing for most people?
Because the evidence for "Mutual funds, in aggregate, underperform the market by precisely what they charge in fees; past performance of mutual funds does not predict future results; no more fund managers beat the market than would be suggested by random chance; capital flows into mutual funds are virtually invariably poorly timed to surge after they have made their gains, hurting fund performance" is incredible. It's, um, shoot, I need an analogy... you know how science suggests that cigarettes might not be a good thing health-wise? That conclusion is tentative next to "actively managed mutual funds are a poor investment vehicle."
Index funds are virtually structurally guaranteed to outperform actively managed funds for any given equivalent investment classes, because index funds also underperform the market by fees, but their fees are about 100 ~ 250 basis points lower. Over someone's working life, that turns into "Your retirement account is several times as large as your neighbor who used actively managed mutual funds."
- wtvanhest 14y agoJust some alternative thoughts that are sort of nuanced, but no one talks about for some reason: 1) Synthetic ETFs could pose serious problems and most investors are not familiar with the difference between them and physical ETFs nor are they aware if they even have them in their portfolio. This is a quick read that summarizes part of the problem: http://www.ft.com/intl/cms/s/0/4407fb24-edc4-11e0-a9a9-00144feab49a.html#axzz23j9nepat http://www.ft.com/intl/cms/s/0/4407fb24-edc4-11e0-a9a9-00144... 2) How do you choose the correct ETF. How do you choose between emerging markets nd US, etc. Picking a broad market ETF is probably safest, but there is even a variety of those with different features. 3) Tracking Error can cause ETFs to outperform or underperform by huge amounts on occasion. This article refers to Vanguard’s telecommunications services ETF which underperformed by 5.7%! http://www.investopedia.com/articles/exchangetradedfunds/09/etf-tracking-errors.asp#axzz23jCeye1G http://www.investopedia.com/articles/exchangetradedfunds/09/... 4) Compared with no load funds, ETFs can be expensive due to trading fees. Obviously if you buy and hold great quantities of money it isn’t an issue, but it should be considered in your investment.
- infinite8s 14y agoYou are talking about ETFs, while patio11 is talking about index funds
- wtvanhest 14y agoPresumably patio11 is talking about both, and if he isn't, many people who read this will assume he is. The tracking error issue can still come up with index funds, the differences between them are minimal: http://www.investopedia.com/articles/mutualfund/05/ETFIndexFund.asp#axzz23pjUD6t8 http://www.investopedia.com/articles/mutualfund/05/ETFIndexF...