Top 5 Reasons for Retail Investors to Invest in Passive Funds

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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.

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