All large-cap funds: 59.4%All mid-cap funds: 63.5% All small-cap funds: 63.1% These are big shortfalls: Over the past 10 years, an average of 59.4% of large-cap funds, 63.5% of mid-cap ones and 63.1% of small-cap vehicles failed to beat their respective benchmark. The odds of picking a winning fund were low even in the small- and mid-cap arena, where many people assume that active managers have an edge since these stocks aren't as heavily researched as large-cap stocks. Some investors argue that an active fund can outperform during a bear market since the manager can move to cash. Index funds, on the other hand, have to remain fully invested even when the market declines.
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. More from AdviceIQ