August 2, 2015
Index mutual funds biggest advantage is their low costs. After stock mutual fund costs of brokerage commissions, sales loads, bid-ask spreads, management fees, and advertising are deducted, the returns are about 2-3% lower than a broad market index fund. This might not seem like much, but over the course of a lifetime of investing the difference is huge.
Fund investors sometimes earn even less because of poor market timing and under performing funds (Buy High/ Sell Low, Dot.Com Bubble).
For example, $10,000 with a 5% average return compounded annually over a 50 years, is worth $144,674, while the same amount and time at 8% yields $469,000. Higher costs matter. This site can be used for interest calculations- http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php
All Index Funds are not created equal however. Some have sales loads or class B shares with high annual fees. Look for index funds with an expense ratio in the .05 to .10 area. So perform your due diligence when investing in them.
I forget who said “The best way to make money with mutual funds is to invest in the company that sells them.”
S&P has been in a trading range(2040 to 2130) since February. I’ll be concerned if it drops to the 1980 area.