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Actively Managed vs. Index Funds
Posted on 4/27/14 at 7:36 pm
Posted on 4/27/14 at 7:36 pm
Which do you prefer and why? Or is a mixture a good thing? Looking at lowering my expense ratios in the 401k and switching to index funds that are offered, just trying to get some other opinions on the matter.
4
Posted on 4/27/14 at 8:37 pm to jtayl71
This will be a highly contested discussion. I will only say this, don't let expense ratios determine your selection. When the funds report returns those are net of fees. I will take a net return of 10% with 2% fees over 8% return with .75% fees. Good luck.
Posted on 4/27/14 at 8:48 pm to jtayl71
Generally speaking, it is possible to get better performance with actively traded funds, but usually these are alternative investment funds that are difficult for average investors to get into, like a VC fund from Sequoia or Kleiner Perkins.
Additionally, the empirical data from the last 10+ years or so seems to suggest that a lot of the superior returns from hedge funds and alternative investments may be played out already to a large degree. Whereas a lot of university endowment funds and huge institutional investors made off like bandits in the 1990s allocating portions of their portfolio with alternative investments, the returns in recent years have been less than stellar.
Then again, the VC cycle comes and goes, and maybe the same is true for actively managed funds.
Additionally, the empirical data from the last 10+ years or so seems to suggest that a lot of the superior returns from hedge funds and alternative investments may be played out already to a large degree. Whereas a lot of university endowment funds and huge institutional investors made off like bandits in the 1990s allocating portions of their portfolio with alternative investments, the returns in recent years have been less than stellar.
Then again, the VC cycle comes and goes, and maybe the same is true for actively managed funds.
Posted on 4/28/14 at 12:40 am to Doc Fenton
As Janky said, the fees are baked into the reported returns. Look at apples to apples.
Course, in a down market, the fund with the lesser fee will probably be the better bet.
Course, in a down market, the fund with the lesser fee will probably be the better bet.
Posted on 4/28/14 at 8:59 am to jtayl71
Active vs. Passive management will be a long time debate.
Therefore...
For stocks, I try to have my international and small cap, and index most of my domestic large cap.
I'm not sure which is better for fixed income, but I lean towards active management.
Therefore...
quote:
a mixture a good thing
For stocks, I try to have my international and small cap, and index most of my domestic large cap.
I'm not sure which is better for fixed income, but I lean towards active management.
Posted on 4/28/14 at 10:51 am to Cmlsu5618
I would mix it up, that is what I did although I have a tad more in actively managed at the moment.
Posted on 4/28/14 at 11:01 am to jtayl71
Top tier active managers are worth it. Most mutual funds aren't.
Unless you have tensof millions of dollars, I would suggest just sticking with index funds.
Unless you have tensof millions of dollars, I would suggest just sticking with index funds.
Posted on 4/28/14 at 11:42 am to matthew25
quote:
Course, in a down market, the fund with the lesser fee will probably be the better bet.
What?? Active management is usually way better in a down market than an index and is where their higher fee is most justified.
I like a blend of both and that is what a lot of institutional money does. Passive is typically better is strong up markets, active is typically better in down markets. In markets without a clear direction (like now) it is a toss up as stock selection in active can either work for you or against you.
Posted on 4/28/14 at 12:38 pm to Maderan
It depends. I think I would tend to agree with matthew25 for most bearish periods. Now for a ridiculous market going into a storm like '29 or '99, that's another story. I know managers sell themselves with the marketing line that they will protect you in down times (hence the "hedge" term), the reality is often different, and I would argue that active management tends to make more sense in a market with a lot of fat prices sloshing around.
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