This question should be asked as part of your investing unit as it requires some prior knowledge. 

Answer: Index Funds

Here's the ready-to-go slides for this Question of the Day that you can use in your classroom.

Questions:

1. If you saw an advertisement for a mutual fund that consistently “beats the market” (pick stocks that do better than the overall market), what questions would you ask? 
2. 90% of mutual funds that are active and trying to “beat the market” do NOT succeed over the long-term and yet close to 50% of mutual fund assets are invested in these active funds. Why do you think investors choose to invest this way?

Behind the numbers (Money)

Indexing just became the undisputed heavyweight champion of the stock market, and small investors should be cheering the victory.

The amount of money in passive U.S. stock mutual funds exceeded that in actively-managed holdings for the first time in August, completing a transformation that began with the invention of the index fund more than 40 years ago, according to a recent report by fund-research firm Morningstar...

“This is a win for ordinary investors who are keeping more of their hard-earned savings for themselves,” said Ben Johnson, director of passive strategies research at Morningstar, in an e-mail. “Average investors can now build a globally-diversified portfolio at a fraction of the cost and with a far lower minimum investment than they could 10 years ago.”

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Our upcoming Virtual PD on Thursday will focus on the Psychology of Investing. We will play a few games that demonstrate how psychology impacts our decision-making. Register here. 

Our latest FinCap Friday "When the Mean is Nice " focused on this topic and has a great explainer video to explain index funds. 

About the Author

Tim Ranzetta

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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