Even If an Active Fund Can Beat the Market, They (Probably) Won't Take Your Money
An inconvenient truth for investor's who want to beat the market
I wrote 55,000 words presenting the evidence that supports this statement:
“The rational way to invest your money is to buy a handful of globally diversified index funds and not selling for several decades.”
Using market-cap-weighted index funds to passively invest in the stock market means buying the entire stock market rather than paying a fund manager to pick stocks for you.
The longer you stay invested, the less likely it becomes that an actively managed fund that employs a manager to pick stocks will outperform the benchmark index. At the time I write this, 93.4% of active funds in the U.S. have underperformed the S&P 500.
The superpower that index funds possess is their ultra low-fees. Gurus like Dave Ramsey will tell you that investment fees aren’t all that important; what matters are returns.
I agree that total returns net of fees and taxes is what matters, and research shows that funds with low fees tend to have the best net returns.
I often get comments from people pointing to the occasional fund that has consistently outperformed the S&P 500, even when fees are taken into account. It’s true; a handful of investment managers have consistently beaten the market over the long run.
In this article, I explain why these superstar fund managers probably won’t take your money.