Why are you such big fans of index funds?

If you compare the Fidelity Low Price Stock Fund to Vanguard’s small-cap and mid-cap index funds, you will see Fidelity’s three-year, five-year and 10-year performance leaves the index funds in the dust. Fidelity’s fund is a small to midcap blend fund. If it’s so easy to find funds that do much better than index funds, why do you recommend index funds? If actively managed funds make you more money in the end, you’d be better off rather than worrying so much about expense ratios and turnover. Please answer my question. I am getting different answers from every advisor.

The debate between active and passive management has been going on for decades and will probably continue to do so. In the end, you must decide for yourself what to believe and what to do. I’ll give you my perspective plus some resources that show you why we believe in passive management.

What you have done is very easy. You have looked at the past and determined what you should have invested in, at least in this category of assets. If investing were that simple, everybody would do it, and we’d all be wealthy. The problem is you cannot invest in any past track record. (more…)