Quote:
Originally Posted by lukeh
Okay, 5 years isn't enough...I can see that. What if I gave you the symbols of funds that beat the S & P over the past 20 years, 40 years, 60 years or even 80 years (and I can)? Then why would you take the index over those managed funds?
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Lots of studies have been done on this and long term (10 yrs or more), the number of managed funds that beat the market index is approaching zero. Choosing the winners is the hard part because if .01% of managed funds will beat the market over the next 10 years, 99.99% will not. Which funds will those be exactly? Almost certainly not the ones who beat the market in the last 10 years. The odds in favor of index funds is better than Vegas.
Past performance is no guarantee of future returns and this is the part you are missing in your observations. You assume a guaranteed future return that will beat the index and that is vanishingly rare. If index funds don't have the highest returns over the next ten years they will almost certainly be in the top 95% compared with all managed funds with a similar but actively traded mix. They carry very low risk. Risk is not zero but it is very low over a 10 year window when compared to actively traded funds in a similar sector.
Almost no one can beat the market - MarketWatch