Index Funds Continue to Be Great Investments

Here's a piece from MSN Money that talks about the fact that many investment advisors/money managers charge a fortune to handle your investments. So what's the alternative? Index funds, of course. The details:

Today's index funds make it possible to build a diversified portfolio at very low cost. With a combination of mutual funds and exchange-traded funds, you can build a portfolio for an average cost of about three-tenths of 1%. If you are approaching retirement with a portfolio of $250,000, you can save $1,750 a year over a 1% annual charge from a manager or $4,250 over a 2% annual charge.

Yep, that's one reason I love index funds -- they keep costs low, which in turn helps you earn a better return on your money.

For more on the advantages of index fund investing, see these posts:

• Facts on the Benefits of Index Investing

• Illustration of How Costs Can Greatly Hamper Your Investment Returns (And Why Index Funds Do So Well)

• Index Funds Save on Taxes

Comments

[JACK]

It's so true. When I changed jobs I rolled my old 401k into an ira with a money manager. I like him a lot. He's sound in his strategy, long-term oriented and doesn't try to sell me anything. He's exactly the type of guy I'd want to have as a financial adviser. I pay him 1.25%. I've always resisted sending him more assets because of that. You combine the 1.25% and the fact that the actively managed funds have an expense ratio that's at least 1% higher than indexes, that means he's got to beat the index by 2.25% just to break even. My separate portfolio of three index funds has consistently outperformed him. And it's not that he's done badly, far from it, he's done great compared to a single full market index. I just wonder, though, in the long run, if I'm just not better off pocketing the 2.25% and accepting the index's level of returns and getting my performance above the S&P500, etc., through the diversification of indexes.

I probably will at some point. But I feel bad about it, because there are time when you really do need a financial adviser and he's just the type of person I'd select.

[Danny Tsang]

I believe it is Bogle who once said something along the lines of "Performance comes and goes but costs roll on forever". So true. No magic fund manager can consistently bring top level performance, but they can guarantee you a higher cost than an index fund.