"Actively-managed funds are good in a falling
market because they can avoid losses.” Is this true and will stock index funds
do worse as the stock market tanks? Many believe that fund managers have a
crystal ball and know when stocks are going to rise and when they are going to
fall. We have seen that historically stock index funds beat the average return
of actively-managed funds over the long term because of the lower fees of the
index funds. So how about in a falling market? In the last month, the market
has been unkind with S&P 500 Index funds down about 4.4%. How about some
respected brand-name actively-managed funds? Fidelity Contrafund, T. Rowe Price
Blue Chip Growth and American Funds Growth Fund of America have all
underperformed their benchmark index funds in this falling market. For
sure, others have done better. But perhaps fund managers do NOT have
crystal balls and aren’t the panacea for falling markets. What to do? Remember that your stock holdings are for
your needs a decade or more from now and stop worrying about this week’s
performance.
Larry Pike, CFA
www.clientpriority.com
Still, having a fund manager worry about the market performance is better than panicking yourself and oftentime not knowing what to do. I used to be the panicking type before I 'joined' the fund I'm in right now. So if nerves strike me when I hear about poor market conditions, I read Mark's articles and hope the changes aren't permanent and my manager can help.
ReplyDeleteI agree that my clients sleep better at night knowing that they have a professional looking out for them. And I want my clients to understand how the markets work so they can sleep better knowing that the long run is what counts and the markets have never had a negative 15-year period going back several decades. I do this for my clients in an hourly, fee-based model so I do not charge them the high, ongoing fees that hurts long-term performance. Thanks for the comment.
Delete- LP