When you’re looking at mutual funds and the expenses that come with them, a primary difference between them is whether they use an active or passive investing strategy. With actively managed funds, a fund manager hand picks the investments he or she wants in the fund and actively oversees their performance in an effort to outperform benchmarks. They remove the ones they don’t think will succeed and add others along the way. This takes extra time, research and expertise and so these funds have higher fees.
The other approach, passive investing, creates funds that traditionally just mirror some well-known index, like the Dow Jones Industrial Average or the S&P 500. The fund manager doesn’t actively pick stocks or bonds they think will do well or root out ones they think will not. The fund just mirrors the index for better or for worse. These funds don’t require the oversight that actively managed funds do, so their expenses are less.
Some people swear by passive index funds, and they are typically cheaper, while other people think having an actively managed fund is best. I think having a mix of both can be appropriate, especially in certain markets. Some managers have shown they can outperform index funds and effectively overcome their extra expenses. What mix is best for you? It depends on what helps you with your future goals, so contact me and I’ll be happy to help you figure that out. Also, go to my blog to watch more videos and learn more.
DISCLOSURE: Market indices listed are unmanaged and are not available for direct investment.
This is meant for educational purposes only. It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions. Past performance does not guarantee future results. Investing involves risk and the potential to lose principal.
Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.