Active vs. Passive Investing

The $12 trillion mutual fund industry is based on the belief that individual portfolio managers can out-think and out-perform the overall stock market. The facts of the matter, however, prove otherwise.

The following three tables compare the performance of actively managed mutual funds against their benchmarks (or indices). The tables specify the percentage of funds that failed to beat their benchmark, so the higher the percentage the worse the funds did. The information is for the period ending December 31, 2008.

You'll see significant underperformance for each asset class and time period and you're left with two possible reasons for the dismal performance of active mutual funds. Either the portfolio managers aren't as smart as they think they are or the expenses charged by actively managed funds are simply too high. Both reasons contribute to the dismal results, but expenses constitute the primary culprit. So after reviewing this information, check out the Fees & Expenses tab.