Morningstar reports
that in the first half of 2018, low-cost, unmanaged index funds (investment
funds that simply track an investment benchmark but no human is deciding what
to buy and sell) beat 64% of actively-managed funds in 9 categories, where a
manager is paid to try to outperform. How is this possible? The active managers
charge a high fee and they must do so well that they make up for the fee just
to break even, and more often than not they don't succeed. Morningstar adds
that managers keep some money in cash and when the markets rise that is a
disadvantage. Morningstar’s report says that investors improve their odds of
investment success by favoring low-cost funds over high-cost funds. A CNBC
commentator (on 8/24) said that most mutual fund managers are afraid to trail
their benchmark so they largely buy what’s in an index fund and then they are
very likely to underperform because they are almost the same fund as the index
fund except they have higher fees. Other managers have portfolios that are not
close to their benchmark but investors in these funds not only have risky
exposure to the markets but now they have additional risk that the manager will
do poorly even if the markets do well. Low-cost index funds are looking pretty
good for long-term, buy-and-hold investors. Choose your advisor and your
investments wisely.
https://www.morningstar.com/blog/2018/08/23/actively-managed.html,
Larry Pike, CFA
Client Priority
Financial Advisors LLC
Hourly, Fee-based Financial
Planning and Advice
