The Track Records Of Mutual Fund Managers Essay

The Track Records Of Mutual Fund Managers Essay

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A wide grin spread across my face as I proudly announced to my finance professor, “I’ve been saving up for a year, and I’m finally ready to start investing real money in stocks.” Despite my enthusiasm, he surprised me by replying, “Be careful. Speculating is really risky. You should look into indexing.” I took a step back and tried to make sense of the situation. This very professor has been teaching me how to handpick stocks and valuate them based on forecasts, i.e. speculate. Yet the same professor was telling me not to trade based on speculation. I was dumbfounded. This sprung my curiosity, and inspired me to read a handful of the best investment books ever written. Even if his advice seemed counterintuitive at first, in hindsight it was the best investment advice I had ever gotten.

Indexing is proven to attract a larger top line than speculating, and as a finance student, I greatly appreciate that. The track records of mutual fund managers, i.e. professional speculators, are publically available. For instance, in 2014 86% of all U.S. large-cap funds performed worse than the S&P 500 index, meaning they failed to serve their very purpose.1 The results have been just as disappointing decade after decade. In a twenty year time period from 1993-2013, the S&P 500 Index averaged 9.22% per year, while the average mutual fund lagged behind at 8.36%.2 What if you only invested in the best performing mutual funds, hoping that their superior performance would continue? Well in 1968, the number one fund was the Mates Fund. But if you invested in it, your investment would have lost 93% of its value by 1974.2 Each decade’s top funds tend to be the worst performers of the next decade.2 Obviously every year, without fail, some fund is bound t...


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...rhaps it’s due to a conflict of interest. By pushing their expensive mutual funds, they can pocket 2-3% commission. Whereas if you invest in index funds, the only winner is you. More and more individuals and institutions are understanding the benefits of indexing and are reaping their rewards.
My finance professor’s advice has completely changed my investment decision. Instead of falling into the glamour of speculating and risking my savings, I chose to responsibly invest in indexing, since it’s statistically proven to be superior. As a result, I can expect higher profits, fewer costs, more free time, and have greater financial security in my future. When someone with all the right training to speculate, like myself, steps down and makes an informed decision to surrender to the more rational choice of indexing, I hope it speaks very loudly on the merit on indexing.

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