With so much attention focused on the billions and billions of dollars flowing into passively managed index ETFs, you might be surprised to find that actively managed mutual funds still exist! But they do, although the reasons that this segment of the market is shrinking are easy to understand.
For most funds, the cost of active management continues to be prohibitive. The average expense ratio for an actively management large cap mutual fund is around 1.25%. The average for an S&P 500 index fund? About 0.15%. That difference of over 100 basis points annually combined with the difficulty of trying to consistently pick outperformers over time has proven a steep hill to climb. Roughly 80% of active funds fail to match their benchmarks over time.
But not all active funds should be kicked to the curb. Some funds have great long-term track records, low expenses and smartly managed portfolios. At Vanguard, one of their oldest funds is also one of their best.
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