Odds For Investment Success Worsen When Investors Select Two Or More Actively Managed Funds In An Asset Class
The three-index-fund portfolio outperformed the one actively managed fund portfolio 82.9% of the time. When two actively managed funds were selected in each of the three asset classes (a total of six funds), the odds in favor of the all-index-fund portfolio increased to 87.1%. Finally, when three actively managed funds were selected in each asset class (a total of nine funds), the odds reached 91.0% in favor of the all-index-fund portfolio.
This finding has meaningful implications for mutual fund investors, and should be of particular importance for participants in self-directed employer sponsored retirement plans. An all-index fund portfolio has a high probability of outperforming actively managed funds. However, if actively managed funds are selected, it’s generally better to pick one fund per asset class and hope for the best.
Past performance does not guarantee of future results. Portfolio Solutions® will make a list of all recommendations within the immediately preceding period of at least one year available upon request.