I Still Love Index Funds

by Galia Gichon on March 4, 2009

They aren’t the best performers in the land and can be a bit boring. But if you take away all the fees and taxes you are paying, index funds are usually the top performer. According to a recent research study, a regular mutual fund (also called actively managed) would need to perform 4.3% more a year just to break even with the index fund. This research report actively searched Morningstar.com (my favorite site) and found barely 3% of non-index funds can boast this better performance.

If you are looking at your investments in tax-sheltered portfolios, such as 401ks or IRAs, the odds of performing better than the index fund are still minimal.

The ANSWER: you don’t have to go to extremes and change your whole portfolio to index funds at Vanguard. However, strive to own at least one or two and make sure your expense ratio on your remaining funds is below 1%.

Research study by Mark Kritzman, Windham Capital Management, Professor at MIT’s Sloan School of Management.

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