If Professional Money Managers Can’t Outperform The Index Why Do You Bother?

in Investing by

In a recent report by Goldman Sachs, Lipper, and FactSet, it shows that only 23% of active fund managers of large-cap core funds are outperforming the S&P 500 in 2014 YTD. What’s equally interesting is that out of the past 11 years, only twice have active fund managers outperformed the S&P 500.

Can you imagine investing in a mutual fund that not only underperforms the S&P 500, but also charges 1% in management fees a year? The active fund manager will likely never respond to you over e-mail. S/he will likely never pick up the phone to answer your questions either. All they will do is happily collect their fee no matter how poorly they perform. Just say “no” to a branded portfolio.

Active Mutual Performance Chart

If you want help managing your assets, consider hiring a Registered Investment Advisor like Personal Capital who will create a custom diversified portfolio for you based on your individual financial situation and retirement goals. Our most important service is acting as a financial shepherd throughout your entire life. In addition to maintaining an efficient investment portfolio, we’re here to help with saving strategies, education planning, tax minimization, estate planning, and more. When times turn bad, we’ll be there to help guide you through the fire. Oh, and we’ll return your calls and respond to your e-mails as well.

It’s human nature to believe we are all better than average and can identify the few funds which will outperform. But most of us won’t. The sooner we can align perception with reality, the better off we will all be. Investing with actively managed mutual funds is a losing proposition.

Photo credit: The Market by Iman Mosaad, Flickr Creative Commons

The following two tabs change content below.

Financial Samurai

Sam is the former Managing Editor of the Daily Capital blog. He worked in finance from 1999-2012 before deciding to focus full-time on his online endeavors - FinancialSamurai.com and the Yakezie Network. Sam is an avid tennis fan who loves to travel. He received his BA from William & Mary and his MBA from UC Berkeley.


  1. Maxwell

    If actively managed mutual funds can’t beat the S&P, why will a custom portfolio from Personal Capital? Can you show some numbers to back that up?

    • Financial Samurai

      Hi Maxwell,

      Good question. Personal Capital will construct a portfolio of stock and index portfolios for you to mimic the various indices. Depending on each person’s goals and risk tolerance, weightings will be different. We don’t try to outperform the index, but sometimes we will and sometimes we won’t. We provide services, consultation, and technology to help clients grow their wealth. It’s a holistic approach.



  2. Josh

    You worked on wall street, so I’m interested to hear what answers do professional money managers provide whenever a potential client cites these type of data which shows clearly an index fund makes better sense majority of time? Do many wealthy clients invest in an index fund? I always believed they use a professional money manager or team of people to minimize downside risk.
    Statistically many things don’t make rational sense for people to partake in. People probably still do it because participating in the game and thinking they’ll beat the odds and emerge as a winner makes life more exciting and interesting. People will continue to gamble in lottery and casinos even though most will lose and pro money managers are still able to attract clients for the same reason, maybe. Also, individual investors will keep some of their money and continue to try to beat the overall market themselves.

    • Financial Samurai

      Josh, I was in institutional equities. My clients were hedge funds, active fund managers, and index fund managers. They also always tried to outperform, but only a minority of them did.


Leave a Reply

Your email address will not be published.

Disclaimer. This Website may contain links to third-party websites. These links are provided solely as a convenience to you and does not imply an affiliation, sponsorship, endorsement, approval, investigation, verification, or monitoring by PCAC of the contents on such third-party websites. Please be advised that PCAC is not responsible for the content of any website owned by a third party.