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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 25223  
Subject: Re: index .vs high risk Date: 3/8/1999 3:19 PM
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<<I've read your article on 401Ks. I get the impression you are herding everyone towards indexes,
but what about high risk growth funds? I'm 22, maxed out my 401K, have 2 other mutual funds
and all are in the high risk categories because I plan to invest monthly for a long period of time. It's
this what people with long-term goals should do?>>

Dana,

I don't know that we're "herding" anyone -- we're just reporting the data: index funds are far and away the most productive mutual funds out there. The low costs and the low turnover rates give index funds an advantage of roughly 2% annually over managed mutual funds -- though the differential may be growing due to the increase in expense ratios in managed mutual funds over the last twenty years.

I'm not sure what "high risk growth funds" are. Index funds are no less "risky" than any other mutual fund -- they just follow mechanical approaches to investing the money, and do so in cost effective ways. If you're asking whether large-cap growth funds are better than index funds, you really need to compare their returns to an index fund which is invested specifically in growth stocks. Vanguard Growth (VIGRX) is an index fund invested in stocks generally categorized as the "growth" half (as opposed to the "value" half ) of the S&P 500 stocks. Vanguard Growth has been destroying the returns of other managed large-cap growth funds.

If you think growth will outperform value over the next 40 or 50 years ("growth" has actually underperformed "value" historically, but by the tiniest of margins), than you would do well to compare your mutual funds' records over the recent past to that of VIGRX.

Best,

Bill
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