Filed Under:Life Insurance, Life Planning Strategies

Survey: Investors better off with passive index funds

Most of the people who paid a mutual fund manager in the last decade would have done better by investing in a passive index fund at a much lower cost, according to new research.

NerdWallet published this finding in a summary of results from a survey that examines more than 24,000 mutual funds and ETFS available to U.S. investors for the ten-year period ending on December 31, 2013. Of these, 7,943 were in existence for the full ten years.

The asset-weighted average return of the actively managed mutual funds over this period was 6.50% while the passively managed index products averaged 7.30%, the report states. Similarly, for equity funds the average return was 7.19% for active managers and 7.65% for passive funds. 

Index funds outperformed actively managed funds regardless of whether returns were measured by asset-weighted average, median, or a simple average, the survey adds.

“Past academic studies have indicated that professional investors are not worth the cost because the after-fee return is lower than that of the market index,” the report states. “Theoretically, active managers as a group will have a hard time outperforming the market over the long-run because professional investors are a large portion of the market and once fees are netted out, they are likely to underperform a passive index.”

Among the report’s additional conclusions:

  • Only 24% of professional investors beat the market over the past 10 years
  • Index funds outperform actively managed funds by 0.80% annually, but active managers have lower risk
  • Active managers outperform the index by 0.12% before fees, but charge more in fees than the value they create
  • Large funds significantly outperform small funds with much higher returns and lower risk
  • Smaller stocks are riskier than large stocks, but don’t necessarily deliver higher return
  • Growth stocks significantly outperformed value stocks over the past decade

 

Top Sales and Marketing Ideas - 2014

Special Feature

2014 100 Best Sales & Marketing Ideas

There are a million ways to sell an insurance product, and any one of them may work depending on your target market, your product lineup and your own unique skill set.

Explore Now
More Resources

Comments

Close

Advertisement. Closing in 15 seconds.