Thursday, August 9, 2007

Mutual Fund Investors - Read This

Holy eye-opening batman! This little study in the February 2006 issue of the Journal of Financial Planning is seriously required reading for anyone who has ever thought about investing in an actively managed mutual fund. Thomas P. McGuigan throws the smack down on the traditional wisdom that says mutual fund managers earn their money. Take that financial planners.

For those who refuse to spend the 20 minutes to read the article - he're is the idea.

You: "I'm gonna invest in a mutual fund. It's worth it because the experts know what they're doing and I'll earn more"

Tommy P.: "Hmm, except you'll do worse than the market as a whole in a 20-year period, and most likely in every rolling ten-year period. You can likely do better, sometimes SIGNIFICANTLY better by simply investing in an index fund"

You: "I call shenanigans, if that were actually true why would anybody invest in an actively managed mutual fund?"

Tommy P.: "Exactly"

Update - It seems like this is more well known that I thought. The Motley Fool's investing basics page says essentially the same thing.

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