Thursday, August 30, 2018

Being Smart with $$ -- Morningstar Report Shows Low-Cost Funds Outperform Again



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


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