Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required

by Kristy Shen

And for all these fees, what value do you get? Turns out, not much. If you were to poll all active managers who are trying to outguess the stock market, you might expect about 50 percent to have beaten the index and 50 percent to have underperformed. But that’s not the case, and the reason is the management fees. Active managers don’t work for free. That means they have to beat the index by 1–2 percent just to make up for their own fees. Would you like to know how many active managers manage to beat the indexes after fees in any given year? Fifteen percent. That’s right. Only 15 percent of active managers manage to beat their benchmark indexes after fees. And because there’s no reliable way to tell which of the active managers will turn out to be among that 15 percent, there’s no reliable way to pick which actively managed mutual funds will outperform—especially if the fund manager won’t even meet with you. That’s when I realized it was really very simple. Index investing beats 85 percent of actively managed mutual funds.