Less Appreciated Aspects of Indexing vs. Active Management

A perennial question is whether to use index or active mutual funds. It's an important question -- even more now that exchange-traded funds offer large and small investors alike the opportunity to index virtually all corners of the capital markets. Everybody likes to outperform, and mutual fund...

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Bibliographic Details
Published in:Journal of Financial Planning 2009-08, Vol.22 (8), p.30
Main Author: Riepe, Mark W
Format: Article
Language:English
Subjects:
Decision making
Investors
Mutual funds
Online Access:Get full text
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Summary:A perennial question is whether to use index or active mutual funds. It's an important question -- even more now that exchange-traded funds offer large and small investors alike the opportunity to index virtually all corners of the capital markets. Everybody likes to outperform, and mutual funds that outperform their peers are lauded for their success. In some studies of index vs. active, performance is treated as a binary variable. "Price" refers to the management fees charged by active funds. A knock against active management is that it is doomed to fail. The world of investing can easily accommodate both actively managed and index funds. That creates, however, a burden for the adviser to be thoughtful in deciding if and when to use one or the other or both. When it becomes time for you to make that decision, be thoughtful about the many nuances of the decision.
ISSN:1040-3981