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this active vs passive management debate seems so confusing
what is your take on it ?
thanks
Most active funds don't beat their index benchmarks. That said, the best actively managed funds have most of the assets. There is no perfect answer here. But it isn't quite as hard to beat index funds as index fund purists say. But it isn't necessarily easy, either. The easiest (but not guaranteed) way to beat an index fund is to make sure the expense ratio is low. I would say, if your money is in a regular taxable account (as opposed to a retirement account), index funds become more compelling, because they generate more taxable gains than index funds due to more frequent trading. If it's a retirement account (IRA, Roth IRA, 401k, 403b, 457, etc.), then actively managed funds have a somewhat better shot at beating their benchmarks, since taxes aren't a consideration. Examples of good, low cost, actively managed funds and their expense ratios:
Vanguard Dividend Growth .22% (Similar to Vanguard Dividend Appreciation Index but better returns).
Dodge & Cox Stock .52%
Mairs & Power Growth .64%
Primecap Odyssey Growth .65%
T. Rowe Price Blue Chip Growth. 70%
T. Rowe Price Dividend Growth .64%
T. Rowe Price Value .78%
Vanguard Equity Income .27%
T. Rowe Price Small Cap Value .85%
T. Rowe Price QM Small Cap Growth .80%
Fidelity Growth Company .85%
Vanguard Wellington (balanced fund--a mix of stocks and bonds) .25%
Dodge & Cox Balanced .53%
Fidelity Balanced .53%
So, as you can see, you probably shouldn't pay more than .75% for a large company stock fund. You'll want to pay a little less for a balanced fund. It's ok to go a little higher for small company stock funds, but keep it under 1%.
Last edited by mysticaltyger; 09-21-2019 at 12:01 AM..
because they look at every fund in the universe ...morningstar found if you merely picked the 20% largest funds , the mega funds as they are called and left the smaller funds out of the equation and follow the money your odds of beating indexing jumps to 80% ...
i have 3 mega funds for decades , fidelity contra , fidelity growth company and fidelity blue chip growth and all 3 have better long term records than a total market fund.
it is no different then if i go to every neighborhood here in nyc my odds of getting mugged are a lot higher then if i stick to only the top areas .
Agreed. The other thing the mega funds have in common is below average expense ratios, which is one of the biggest predictors of beating the benchmark index.
Agreed. The other thing the mega funds have in common is below average expense ratios, which is one of the biggest predictors of beating the benchmark index.
The problem is there really are a lot of above average stock pickers that manage funds , but most of these are small funds and small funds have a hard time with internal expenses costing a lot more per share holder then mega funds . so their own internal costs weigh them down .
so a lot of this hoopla about index's beating actively managed funds has to do with the size of the fund being compared to and not stock picking ability . .
The problem is there really are a lot of above average stock pickers that manage funds , but most of these are small funds and small funds have a hard time with internal expenses costing a lot more per share holder then mega funds . so their own internal costs weigh them down .
so a lot of this hoopla about index's beating actively managed funds has to do with the size of the fund being compared to and not stock picking ability . .
Yes, I agree with that.
And ultimately, the more important factor is behavior, not one stock fund vs. another.
Behaviors that matter most:
1. Actually saving/investing the money. The more the better.
2. Not switching the money around from fund to fund once you have a half decent fund.
Oddly enough, I have an actively managed target fund that is comprised of index funds: vthrx. You could hold them individually or pay for the autobalance and glide in the target fund. Some here will point out the fact that the autoglide from equities to bonds will happen no matter what is going on in the market. But so far I would have done the same thing as I approach retirement.
Oddly enough, I have an actively managed target fund that is comprised of index funds: vthrx. You could hold them individually or pay for the autobalance and glide in the target fund. Some here will point out the fact that the autoglide from equities to bonds will happen no matter what is going on in the market. But so far I would have done the same thing as I approach retirement.
The problem with them doing it is there is no standard whatsoever for a glide path ....these glide paths for the same target year can range from very aggressive to much to conservative depending on which fund family ....I would prefer my own glide path rather than they pick one for me
Oddly enough, I have an actively managed target fund that is comprised of index funds: vthrx. You could hold them individually or pay for the autobalance and glide in the target fund. Some here will point out the fact that the autoglide from equities to bonds will happen no matter what is going on in the market. But so far I would have done the same thing as I approach retirement.
That's fine. Target date funds from Vanguard aren't my favorite, but they're good enough.
Personally, I'd pick Vanguard Wellington if it's an option and it's inside a retirement account. It won't get more conservative with time, but its 65% stock 35% bond allocation is one you can hold for a lifetime and it has awesome long term returns as well as low costs. .25% for Investor shares and .17% for Admiral shares.
That's fine. Target date funds from Vanguard aren't my favorite, but they're good enough.
Personally, I'd pick Vanguard Wellington if it's an option and it's inside a retirement account. It won't get more conservative with time, but its 65% stock 35% bond allocation is one you can hold for a lifetime and it has awesome long term returns as well as low costs. .25% for Investor shares and .17% for Admiral shares.
Yeah, I’ve been looking hard at that. I’m 70/30 right now. It’s likely I’ll go Wellington with half and let the rest stay on the glide path to bonds.
MJ, I picked the fund with a target date five years beyond my retirement date. It’s a simple way to adjust.
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