Here’s why we use index mutual funds and ETFs in accounts we manage and why we recommend them for just about everyone.
A recent research study shows that 93 per cent of all US stock funds that were professionally managed were outperformed by their respective index benchmark over a three-year average.
So, if you want to outperform professional investors, the simple approach is to use index funds. Over time, you'll probably end up in the top quarter of performance, maybe even the top 10 per cent of investment performance.
But you need to be careful. Just because a fund says it's an index fund doesn't mean it's the right fund for you. Some index funds have extraordinarily high fees and you want to be sure you are properly diversified.
While you can't control the financial markets, you can control how much you pay in hidden fees and expenses and you can take steps to avoid underperformance. The best way to do that is focus your stock-based investing using index mutual funds and ETFs.