Funds Matter
Warren Buffett Warns: Don’t Try and Stock-pick Your Way to
Financial Freedom (Or Buy Mutual Funds Who Say They Can).
AB401(k) is comprised only of low cost index funds as compared to most plans which are made up of actively managed funds which are trying to “actively” beat the market (index) through stock picking. Owning all the stocks in an index through a low cost index fund is called indexing or passive investing. This style is contrary to active investing, in which you pay significantly more in fees (sometimes 10 to 30 times more!) to a mutual fund manager to make choices about which stocks to buy or sell. The active manager wants to beat the market but study after study shows that few actually do.
Overpaying For Underperformance
Percentage of active managers who failed to beat their benchmark index (15 year period ending in 2016)
LARGE CAP
FUNDS FAILED
TO BEAT THE INDEX
MID CAP
FUNDS FAILED
TO BEAT THE INDEX
SMALL CAP
FUNDS FAILED
TO BEAT THE INDEX
REAL ESTATE
FUNDS FAILED
TO BEAT THE INDEX
INTERNATIONAL
FUNDS FAILED
TO BEAT THE INDEX
EMERGING MARKET
FUNDS FAILED
TO BEAT THE INDEX
MUNICIPAL BONDS
FUNDS FAILED
TO BEAT THE INDEX
HIGH YIELD
FUNDS FAILED
TO BEAT THE INDEX
Source: SPIVA Scorecard. For more information, feel free to download the SPIVA Scorecard here.
“Most investors, both institutional and individual, will find that the best way to own common stocks (shares) is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) of the great majority of investment professionals.”
Warren Buffett – Letter to Shareholders
From 1984 to 1998, a full 15 years, only 8 out of 200 fund managers (4%) beat the Vanguard 500 Index. The Vanguard 500 is a mirror image of the S&P 500 index.
Source: Research Affiliates/Robert Arnott
