Reply to Index funds vs actively managed mutual funds

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[quote=Anonymous]Let’s say half —50% - the active funds make selections that beat the market in a given year. That’s mathematically the most logical expectation.

If you account for fees of active management, you’re down to about 40% of them beating the market net of fees.

Then you have to account for taxes incurred by the managers’ active trading. Now it’s 30% beating the market net of fees and taxes.

Now...which 30%? There’s no demonstrated repeatability. In other words, a fund that’s in the lucky 30% one year has not shown any increased likelihood of being in that 30% in subsequent years. Investment companies work around this by closing funds that happen to have poor track records, and this way they can show you that an impressive number to f their (remaining) funds have beaten the market. This is called survivorship bias.

Picking funds is just guessing, and the odds are stacked against you.

The longer you buy and hold index funds, the more the tax advantage of deferred capital gains compounds in your favor.[/quote]

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