Passive Index Fund Investing vs. Actively Managed Funds
- Our philosophy is to use passive index funds due to the large body of research proving that the vast majority of actively managed funds do not outperform passive index funds
- Standard and Poor's has researched this issue extensively over many years and still publishes reports showing that the majority of actively managed funds fail to outperform passive index funds over long periods of time. Furthermore, the actively managed funds that have beat the index are usually closed to new investors (see Standard and Poor's passive vs active research).
- Not only has Standard and Poor's shown that passive index funds are a better way to invest, they have also proven that actively managed funds with top track records in the past rarely repeat this top performance in the future. In their January 2010 report titled "Do Past Mutual Fund Winners Repeat?", S&P found the following:
- Over the 5 years ending 9/09, no top-quartile performing large-cap or mid-cap funds and only 1 small-cap fund maintained a top-quartile ranking over 5 consecutive 12 month periods.
- Over the 5 years ending 9/09, less than 10% of the top-half performing mutual funds maintained a top-half ranking for over 5 consecutive 12 month periods.
- Over a longer 10-year time period, S&P found that less than 25% of top-quartile funds from 1999 to 2004 maintained a top-quartile ranking for the next 5 years from 2004 to 2009.
