Oh man. Is there a better feeling than finding out you're right? The answer is yes. Because in this case it's helped hundreds of my clients and now not only am I right but also they get to reap the rewards.
I'm referring to a 15-years study that broke this week and released years of data looking at mutual funds and their cost and benefits.
This is HUGE because the far majority of my clients have 401K's composed of mutual funds and some simple, small changes will equal BIG long-term rewards.
First off financial basics. What are mutual funds? And am I invested in them?
Obviously, we haven't met, but yes. Most people are invested in mutual funds.
Mutual funds are a grouped collection of stocks.
The thinking is simple: rather than investing in one company's success in the stock market, mutual funds allow you to diversify your portfolio and spread your investment/risk across many companies.
but There's been a debate in the investment world between financial nerds over the years arguing if active mutual funds or passive mutual funds (index funds) yield the stronger return for clients.
The debate is finally over. There is proof.
A Deeper Look Before The Big Mutual Fund Reveal
On The One Hand, You Have Active Mutual Funds
Active mutual funds have professional investors on the payroll with the responsibility of choosing what to invest in and picking stocks they have researched. Real humans making your investment decisions.
On The Other Hand, You Have Passive Mutual Funds (Index Funds)
Passive mutual funds track a market index like the SMP 500 to buy and sell stocks without having to pay the salaries of professional. It's essentially a computer that runs algorithms to invest your money.
A 15-year study just cemented which mutual fund investment is best... and it is...
The Passive Mutual Funds!
Passive Mutual Funds are the way to go. They win far more often over time (plus, they cost less.)
The study showed that 82% of the top active funds trailed the passive benchmarks.
Many people are invested in active funds. Are you?
If your 401K investment is tracking an index it is passive - you're good.
If your 401K investment reads "Large Cap A" or "Mid Cap A" it is active - you need to run.
The financial nerds found proof that it costs more to invest in active mutual funds and it actually is not near as successful.
It feels pretty great to see a long-term study support what we continual advise our partners. Now to stop patting our backs and see how we can help more people like you.
Be sure you know exactly what you are paying for and why you are paying it! your 401k may need to be adjusted.