Are Index Funds Really Better Than Actively Managed?

The Wall Street Journal writes about the debate over whether Index funds or actively managed funds are better.   Its article begins as follows:

There’s a bright line dividing these two fundamentally different approaches to investing.

Numerous studies have shown that index funds, with their low costs and ability to closely mimic the returns of markets both broad and narrow, steadily outperform the returns of most actively managed funds.

At the same time, there always are some actively managed funds that do beat the returns of passive index funds. Whether those active funds beat the market, or their benchmarks, after taxes and fees, though, is another question.

Although investors have been pulling huge amounts of cash out of actively managed stock funds, there are still others who stick with active management, hoping to hit the jackpot with significantly higher returns.

Here to debate the pros and cons of each type of investing are Daniel Solin, director of investor advocacy for the BAM Alliance, a network of independent wealth-management firms, who prefers index funds to active management; and J.J. Zhang, a blogger on financial advice and winner of MarketWatch’s 2012 World’s Next Great Investing Columnist contest. Mr. Zhang argues that investors are best served pursuing both types of strategies.

Read full article at Are Index Funds Really Better Than Actively Managed? – WSJ.


Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.