No. of Recommendations: 6
brwhiz posted 6/14/02 9:12 PM Number: 34679
"Index funds are for those who haven't learned enough to take control of their investments or those who feel no discomfort watching 30% or more of their fund assets disappear and then take what seems like forever just to get back to where they were."
I hope to retire in 2011. I selected an S&P index fund as my largest retirement investment vehicle 11 years ago. I made that decision because I had "learned enough to take control" of my investments. I'm not interested in exercising the degree of investing "control" that brwhiz advocates; I have a REAL life away from corporate/fund research reports, spreadsheets and charts . . . . and THAT is what works for me.

Do I experience discomfort regarding recent fund performance? Yes.

Do I think bull market conditions similar to the '90's will return? Most definitely. Just as excessive investor caution is the current norm in this extended bear market, disproportionate exuberance will become the rule during the next great extended bull session. When the great American stock market returns to its former glory, the mostly deflated fund shares I am purchasing each payday during this prolonged bear market will likely make me grin.

Believe it.

. . . from
During the 1990s, the S&P 500 has provided an annualized return of 17.3%, compared with just 13.9% for the average diversified mutual fund. This 3.4% is explained first by understanding the fact that during the 1990s the S&P 500 (essentially an index of the 500 largest companies in America) has produced returns that are better than the rest of the market. One must first look at an index of the whole stock market, the Wilshire 5000 Index. The return for the Wilshire 5000 has been 16.3% during the 1990s, so you should count 1.0 percentage points as a "large-cap effect," bringing the gap between managed funds and the Wilshire 5000 down to 2.4%.

. . . from
The average actively managed stock mutual fund returns approximately 2% less per year to its shareholders than the stock market returns in general. There is currently no reason to believe that this differential will improve, or that actively managed mutual funds as a group can ever outperform the stock market's average returns. For that reason, investors who are going to invest in mutual funds rather than in individual stocks should hold a very, very, very strong bias toward investing in index funds, which invest across the board in a stock market index.

Fool on . . .
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