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Teacher Talk
Based on the recently published SPIVA analysis, go ahead and buy an index fund. Over any recent time period (1, 3, 5, 10 and 15 years) you would have trounced actively managed funds. Of course, “past performance is no guarantee of future results,” however, when you see the persistence of index fund success over short, medium and long-term periods, and the primary reason for it (they carry lower fees), I would put my money (and do) on this trend continuing.
Chart from SPIVA U.S. Scorecard Report:
Let me explain what you see here. S&P Dow Jones does an annual analysis where they compare investment performance for:
For investors thinking that they are getting something extra for paying the 1% fee, well, chances are that the higher fee you are paying active managers to beat the market almost assures you that you will NOT beat the market. The percentages in the chart indicate how often the index funds are BEATING the active managers over different time frames and let’s just say “it ain’t pretty.”
I would focus the students on the first four lines in the chart which look at ALL domestic mutual funds and then divides that universe based on the size of companies in the mutual funds (Large, Mid and Small Cap). For example, looking at the Large Cap Active Funds which are being compared to the S&P500 index (which is made up of the 500 largest companies in the US) in line 2, we see that over the long-term (15 year period), the index has beaten 92.15% of Large Cap funds.
This shouldn’t be new news to those who have been reading the blog since we have shown here, here and here, how index (or passive) investing has outperformed active investing and why it has.
Questions for students:
Schools in the News for the week of April 14th, 2017
Skill Development: Building Media Literacy Skills
QoD: UPS vs. FedEx: Which company's stock has performed better over the past five years?
QoD: Starbucks vs. Dunkin Donuts: Which company's stock has performed better over the past five years?
QoD: Which mutual funds have more investor dollars - actively managed funds or index funds?
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.
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