Still More Support for Low-Fee Index Funds
Matthew O’Brien’s recent piece in The Atlantic [available here] provides another insightful commentary on the benefits of passively-managed “index” mutual funds instead of their more expensive actively-managed alternatives. Mr. O’Brien first demonstrates that most actively-managed funds perform worse than the indexes they are trying to beat — and that is particularly so if you include the actively-managed funds that perform so badly they close up shop. This is true whether you measure using short time periods like 1 and 3 year performance, or longer periods like 5, 10 or even 15 years. Given that index funds can cost below 0.10% while the typical actively managed fund charges 1.33% per year, there is no reasonable justification for paying 13 times more for something that will most likely perform worse. O’Brien estimates that over the long-term, that difference in fees could cost an active investor 27% of their retirement nest-egg.
“The science is in, and has been for a long time, that actively-managed funds are generally going to perform worse than index funds, and are certain to have significantly higher fees,” says Jerome Schlichter of Schlichter, Bogard & Denton. “Given this information,” Schlichter continued, “your employer should have made a thorough analysis of expected performance if it includes actively managed funds in your 401(k) plan.”
About Schlichter, Bogard & Denton, LLP
Schlichter, Bogard & Denton, LLP is a unique national law firm that represents individuals, including 401(k) plan investors, whose plans suffer from excessive fees or imprudent investment options. Our attorneys are dedicated to helping employees and retirees secure the retirement benefits they deserve. If you have any questions about the fees and investments in your 401(k) or 403(b) plan, please contact Schlichter, Bogard & Denton, LLP at (314) 621-6115 for a free review of your plan.
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