I always tell people to invest in index funds, and your case is another great example of why.
But...you're not an advisor... be careful of the advice you give and receive. I know little about the marketing and sales of food products so I tend not to give generic uninformed advice here either.
Study after study has failed to show the link between good past results and good future results. In fact, good past results is a better predictor of poor future results than good returns due to the concept of ‘reversion to the mean’.
True, sadly, true... but the average investor is uninformed in a perfectly efficient market. Is this experience truely "reversion to the mean" or simply lack of strategy, emotion, impulse or other factors not described. The only consistent reliable predictor of good future fund return is low expenses. Funds with no loads consistently outperform load funds. Funds with lower expenses consistently outperform funds with high expenses.
very, very true... but very few people take expenses into consideration over time - as well as the lack of consistency, diligence, research and very, very possibly inexperienced fund managers (did you really read your prospectus or discuss management tenure, values, philosophy or experience)
Everyone wants to beat the market. Unfortunately it’s more difficult than you think, especially over the long term.
yes and no, but the vast majority of people and investors lack knowledge, understanding and a successful of portfolio risk management along the efficeint frontier - where your gain per unit of risk is maximized and your overall risk is minimized. http://en.wikipedia.org/wiki/Modern_portfolio_theory
Investing is a zero sum game. Investors as a whole make up the market, so as a group, investors can do no better than the market itself. If one investor outperforms the market, another one must underperform it by a like amount.
Mutual fund costs diminish returns. If funds had no costs, investors as a whole would match the market’s returns. But after costs (sales loads, operating expenses, and so on), investors do less well than the market, or index, because the market, or index, doesn’t have costs.
I agree and disagree - but isn't this partly how the world works? Some win, some lose? We will all seek maximum utility of our resources and energy and will pay for what we don't want to do or don't understand? Ever try an appendectomy, root canal or engine overhaul by yourself?
Financial markets are efficient. Information is so readily available, especially about large U.S. companies, that it’s tough for any fund manager to sustain a performance edge over the long term. Some markets are less efficient (international and U.S. small capitalization companies), but they tend to have higher costs, which diminish their returns.
Index investing has an inherent cost advantage. The indexing strategy minimizes fund costs, which can take a large bite out of your investment returns. Index funds have:
Low operating expenses. Index funds expense ratios average 0.28%. The average managed fund has an expense ratio of 1.5%.
Low transaction costs. An index fund does little trading. An actively managed fund’s brokerage and other trading costs may reach 1% of assets annually.
Again, utility... when does your risk of screwing up or making a mistake cost too much for you to bear? WHO WILL YOU SUE?
Over time, the broad U.S. stock market indexes have outperformed general equity funds, on average.
BTW, the average mutual fund investor with limited knowledge, goals, experience, etc... only OWNS a fund for less than 3 years without an advisor and NEVER benefits from long-term, 10year+ or lifetime portfolio gains. This is very tragic...
Over ten years, the total return of the Wilshire 5000 (1989-1998) is 414.67% (average annual rate of 17.80%).
nice stat, but why THAT 10year period?The average general equity fund cumulatively returned 312.48% over 10 years (average annual rate of 15.22%).
In the last ten years 11% of managed funds beat the S&P 500 index. Over the last 15 years only 4% of actively managed funds beat this index.
Yes, that's right. Only a measly 4% of actively managed funds beat the passive index.
again... have you ever read a prospectus for management tenure? The average manager with many companies and/or funds is less than 3 years. How much education do you have? How long have you had your job? How good were you after 3 years? Would you hire yourself to manage your wealth with this experience? Again, how long have you held your fund?
Your odds at picking an actively managed fund that will beat an index fund over the long-term are so bad that you would be better off gambling at Las Vegas.
please... In vegas you're guaranteed a house advantage at a minimum of 52%
Let's compare your fund to the Total Stock Market Index, the largest and broadest index fund available.
YTD, the index has earned 7.91%, your fund -7.05%
One year, the index has earned 10.25%, your fund -3.11%.
Five years, the index has earned 8.45%, your fund 2.82%.
10 years, the index has earned 8.56%, your fund 5.14%.
but you never measured the efficiency, risk or standard deviation of this... most real people I know as well as clients and investors who were invested- balanced or unbalanced- from March 2000 through October of 2002 were NOT hapy with the volatility of an index