Are you among the many investors who are wondering why they’re not beating the markets? After all, the Fidelity Magellan (FMAGX) mutual fund was able to do it – why can’t you?
Fidelity was able to do it because it had the brightest minds in the industry, and it had the resources to higher the best. But the days of the fund outperforming the market are mostly a memory – in the last 10 years, 62% of its competitors provided higher returns, says Morningstar’s Scott Burns for MSN Money.
What happened? Why hasn’t Fidelity, with all those brains, resources and experience, been able to pick a winning manager?
The answer is simple: the odds of beating the market are slim, no matter who is doing it. It doesn’t matter if it’s you or your fund manager. And the average fund manager only stays at a particular fund for about four and a half years. By that measure, a 30-year-old may have to make a decision about a mutual fund six times before retirement, and a few more times after retirement. And the odds of making two good choices in a row is a scant 9%.
During all of this moving around, the fees are stacking up and eating away at returns and maybe even principle. Over the long run, the financial service fee factor can do a lot of damage to security and retirement.
Exchange traded funds (ETFs) have been a boon to the investment world, as their fees are low and they supply diversification. Even better, the transparency that ETFs offer will give you access to what you own, when you own it, and at any time of the day. And since you’re passively tracking an index with most ETFs, you’re not trying to beat anything – you’re playing right along and you know what you own at all times.
Another benefit that ETFs yield are tax breaks. Capital gains taxes are not attached to ETFs, as the mutual fund incurs.
One of the best things to remember with the days of the star fund manager behind us, if you can’t beat the markets, join them yourself.