index

Active Mutual Funds Suck Compared To Index Funds

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Active Mutual Funds Suck Compared To Index Funds 1

You have probably heard before that most mutual funds do not beat the market. Well, it’s true again, or true still, whichever you prefer. The S&P Dow Jones Indexes (yes, they might be a little biased, but they make their data available, and no one says it’s wrong) put out a report called SPIVA U.S. Year-End 2021 in which they state that nearly 80% of all actively managed domestic equity funds lagged the S&P 1500 in 2021. Even worse, 98.6% of actively managed large-cap growth funds failed to beat the S&P 500 Growth. If that sounds too specific for you, 85% of actively managed large-cap funds trailed the S&P 500. The numbers aren’t much better for other categories. This year, the SPVIA leaves no room to “Yeah, but…” by putting to bed the notion that actively managed mutual funds better handle volatility noting that whether it’s 3-year, 5-year, 10-year, or 20-year risk-adjusted returns, active funds underperform the index. Survivorship Bias The reality is that the situation is actually much worse. Every year approximately 5% of actively managed mutual funds disappear via merger or liquidation. If you think mutual fund companies are merging or liquidating their winning funds, then I have …

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Lower Investment Costs on ETFs

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There are many different ways to successfully invest for the long-term. One such strategy is indexing. The idea of index investing is that over time very few, or maybe even none, of the various mutual funds out there, nor any portfolio you make yourself, beats the returns of the index anyways, especially after expenses. Therefore, you may as well just invest in the indexes themselves. Of course, there is no way to directly invest in an index. To do so, you basically have two choices, index funds, or index-based Exchange Traded Funds, or ETFs. (Theoretically, with enough time and money, you could create your own portfolio to mimic an index, but this is often impractical.) When doing index investing, it is important to keep the expenses, or fees, of your investments as low as possible. After all, you aren’t paying for research or in-depth analysis, since the indexes already exist. Index Investing and Expenses Exchange Traded Funds, trade on the stock exchange, just like their name suggests. That means you buy them just like you do a stock, by putting in an order. For most investors, that purchase (and any subsequent sales) involves a commission, that’s part of your expenses. The …

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Stock Market 2011 Results

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The results of the stock market for 2011 are basically flat. While the Dow Jones Industrial Average can claim a small gain, the S&P 500 Index ended 2011 with a small loss. Likewise, the NASDAQ ended down for 2011 as well. 2011 Dow Jones Up The Dow finished up for 2011 thanks in part to the makeup of the index. The stocks in the Down Jones Industrial Average contain only large U.S. companies. While financial companies make up a significant number of the stocks, their impact is limited because the Dow Jones Average is a price-weighted index. That means that higher priced stocks have more influence on the average than lower priced stocks. Most financial stocks have very low share prices these days, and as a result, their performance doesn’t drag as heavily on the average. Bank of America was the worst performer in the Dow having lost 58.3 percent for the year. The Dow Industrials finished up 5.5 percent for the year. That is three consecutive positive years for the Dow, although nobody is dancing in the streets over this year’s performance, where many components had flat or down years. The top 5 Dow stocks for 2011 were McDonald’s …

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S&P 500 Down for Year 2011

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Reuters has an article today noting that the S&P500 index is in negative territory for the 2011 year. That’s bad news for the huge number of investors invested in index funds. The benchmark for many mutual funds and other investment’s performance is down approximately 3 percent year to date. To get make the market index positive for 2011 would take a return above 1,257.64. Ironically, most investors are used to getting a so-called “Santa Claus” rally at the end of the year as money managers position their balance sheets and investments ahead of end of year reporting. However, this year, the problems in Europe, their affect on the Euro, and the potential collateral damage in the U.S. markets has kept investors from being in a merry mood. As the year winds down, trading volume typically declines in the markets. Mutual funds, hedge fund managers and other money managers that are up for the year, sell everything and hold cash through the end of the year to lock in their gains. Smaller investors, aware of the holidays, also position themselves to have only those investments they wish to hold for the long-term. That not only frees them up from having to …

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S&P 500 Equal Weight Index Not a Lost Decade

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Bloomberg has an interesting snippet about that so-called “lost decade” everyone keeps talking about. It turns out if you had invested in the stocks of the S&P 500 equally (equal weight) back at the market peak of March 24, 2000, you would have had a 66 percent gain through December 2, 2011, not a zero percent gain. Unfortunately, most people who invest in the S&P 500 Index do so in the same way the index is calculated, capitalization-weighted. That means that you buy more of the bigger companies and less of the smaller ones. There are some index funds and ETFs that allow you to invest in the S&P 500 Equal Weighted Index. There are actually numerous ways in which this was not a lost decade for investors, most importantly, if you KEPT INVESTING, which is what both savvy and not-so savvy investors did when they did not turn off their 401k contributions through this turbulent decade. Those investors could have much more money today than the beginning of the decade and are primed for a much bigger recovery when the U.S. economy finally pulls out of its doldrums and moves ahead. More on this later…