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Index Funds vs. Actively-Managed Funds
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Posted by Bill Homer [Email] (#3427) [Profile/Gallery] (more from Bill Homer) on Thu, 12 Jan 2012 12:10:58 Share Post by Email
In Reply to: investing...throwing darts...., GFW3pedals [Profile/Gallery] , Thu, 12 Jan 2012 11:09:33
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Quote: "According to Vanguard, for the 10 years leading up to 2007, the majority of actively-managed U.S. stock funds underperformed the index they were seeking to outperform. For instance, 84% of actively-managed U.S. large blend funds underperformed their index, and 68% of actively-managed U.S. small value funds underperformed, as well. The case is even worse for actively-managed bond funds. In that case, almost 95% of actively-managed bond funds underperformed their indexes for the 10 years leading up to 2007."

Everyone thinks that they can pick the 16% of funds that beat (or equal) the index funds, and apparently 84% of us are wrong. Based on this dismal stat, I have parked a significant chunk of my retirement money in what's called an "Indexed CD": you are guaranteed a minimum return over the term of the CD for several years (a few years ago it was 1%, somewhat under the market rate then and probably even lower today) and any upside is tied to monthly calculations based an index of several that they offer - but the upside is capped on some of these. Mine are offerings of Chase Bank purchased through Schwab (their fixed income desk, it's treated as a CD), but many people offer this. I had to look to find this in Schwab's offerings, it's not widely publicized, perhaps because you will not be generating any trading income for years at a time? Downside: if you have to sell early there is not an easily determined value.


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Index Funds vs. Actively-Managed Funds

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