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Author: TMFMax Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25316  
Subject: Re: Equity Index Funds Date: 8/5/1999 12:16 AM
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I just finished reading the Foolish, but enlightened article on 401K's, and I came
away, actually, learning something. I participate in the company's 401k plan
which is with Fidelity. I am fully vested in the Magellan fund which has an
average annual return of 22.56%, the Index Fund that they offer is the
SPARTAN
US EQ INDEX fund which has an average annual return of
18.63%. Wouldn't it be better for me stay with the Magellan fund than to switch
to the Spartan Index fund?
I submit the question to you and ask for your opinion.


ShoeFun,

There are a couple of things to keep in mind. First, the average annual return will depend on what time period you're comparing here. If I'm looking at the last five years for instance, http://www.smartmoney.com/si/tools/mfsnaps/index.cfm?ident=FMAGX , I see the S&P (or Spartan US Equity Index) outperforming Fidelity Magellan. If you're picking a different time period, the last twelve months perhaps -- I'm not sure, then perhaps Fidelity Magellan is outperforming.

Magellan has a pretty solid track record, except for one very well-publicized bad year by the manager previous to its current one. I would guess offhand that it is unlikely over the next ten years to outperform the S&P 500 index funds simply due to its slightly higher expense ratios, but there's certainly room to suppose just the opposite. It's holdings at this point are often suspiciously similar to the make-up of the S&P 500 -- the results are not likely in the future to diverge too significantly.

You're definitely asking the right question, though, namely how does it compare to the S&P. Just keep in mind that different time periods will provide different answers. (I think if you take the 10-year record for instance, Magellan is ahead by a noticeable bit.)

Best,

Bill
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