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Index Mutual Funds

Mutual Fund Education

Top 5 Reasons for Retail Investors to Invest in Passive Funds

David Dierking Aug 22, 2017

It Comes Down to Fees

In 2016, the average actively managed equity mutual fund had an expense ratio of 0.82%, according to the ICI. The average index fund charged a scant 0.09%. Why is that important? Expenses eat directly into investor returns. Even though it doesn’t seem like a big difference, it adds up over time. For example, an investor who makes a $10,000 investment in the Vanguard Index 500 Fund (VFIAX) Admiral share class and its 0.04% expense ratio would pay just $4 annually for a portfolio of 500 of the largest companies in the United States. Investors could spend hundreds of dollars trying to build a portfolio like that on their own.

Check our take on why it is becoming extremely difficult for active managers to beat the market.

The Markets Are Really Efficient

Check out the typical excuses cited by active fund managers here.

Easy Access to Diversified Portfolios

Information is Everywhere

Check here to learn if it will be easier for active managers to outperform the market as investors avoid active funds.

Active Funds Don’t Provide Downside Protection

The Bottom Line

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Why 30 trillion is invested in mutual funds book