October 19, 2007, Newsletter Issue #88: Actively vs. Passively Managed Funds
Tip of the Week
Actively managed mutual funds are run by a person or team of people who can research each company in depth and fly out to the headquarters to inspect every detail of the company's operations. Passively managed funds are often run by computers that either hold onto companies indefinitely or shuffle them around according to pre-set standards. Before you decide in favor of actively managed funds, consider that all of the research and management time put in by the managers of an actively managed fund is charged to you in the form of fees. Add on to that the fact that a majority of actively managed funds don't perform better than a passively managed S&P 500 Index fund and you'll start to wonder why anyone invests in actively managed funds at all. Although there have been and continue to be a few great mutual fund managers, for the most part it's better for those interested in mutual fund basics to stick with a passively managed index fund.
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