If you’ve been invested in the stock market the last five years, congratulations. You’ve made the most important investment decision…how to allocate your assets (hopefully you’ve had a healthy percentage in stocks). That decision is by far the most influential decision on portfolio performance, so getting the allocation mix right is paramount. One of the next decisions you need to make is how to invest in each portfolio asset class (stocks, bonds, etc). It can be done by purchasing individual securities or through mutual funds. If you are like millions of other Americans, mutual funds tend to be the product of choice. It allows you instant diversification without much capital or labor of buying hundreds of securities.
One of the key questions for purchasing funds is whether you should buy a fund that tries to beat the market or one that matches the market. The majority of investors today are still trying to beat the market. We think this is foolish since the evidence is so overwhelming. Standard and Poors came out with their semi annual research piece on this topic. The results seemed pretty conclusive to us:
Over the last 5 years, we see that in almost every category, 80-90% of all funds fail to outperform their benchmark. The costs associated with trying to outperform an index eventually catch up with these managers, making it difficult to experience sustained outperformance. We have been beating this drum for 10 years (since the inception of our firm) and will continue to do so, as we believe it is a story investors need to hear.
Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.