The SPIVA report showed that active funds didn't perform as well as many expected during the last two market downturns. When looking at all active large, mid and small-cap funds, the report found that anywhere from 54.3% to 83.8% were outperformed by their respective index during the 2000-2002 and 2008 bear markets.
Percentage of active funds underperforming benchmark ('00-'02 bear market, SPIVA data)
All large-cap funds: 53.5%
All mid-cap funds: 77.3%
All small-cap funds: 71.6%
Percentage of active funds underperforming benchmark ('08 bear market, SPIVA data)
All large-cap funds: 54.3%
All mid-cap funds: 74.7%
All small-cap funds: 83.8%
I've read SPIVA reports for years, and the results are fairly consistent. Although considered boring by many and often ridiculed by investment pros, index funds are one of the best investment vehicles for individual investors. In fact, institutional investors have used index-type investments for years. In most cases, you would usually be better off just choosing an index fund.
This underscores the importance of looking for impartial information on a fund before you buy into it. Of course, due diligence still doesn't guarantee that you won't get burned. Even if a fund can honestly boast index-smashing performance, that won't necessarily continue after you invest. Even mutual fund giants like Legg Mason's Bill Miller, whose fund beat the S&P 500 for over a decade, and plenty of star hedge fund managers like John Paulson, have having some bad years lately.
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, a fee-only financial planning firm with offices in Round Rock, San Antonio and Waco, Texas, for
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