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Index Trackers Are So Widely Recommended..... But...?

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Hi folks,

So I read a lot about investments and Index Trackers are widely recommended due to their low cost, and the fact that according to stats a large number (most?) Active Funds perform worse than Index Trackers.

I struggle with this fact, bearing in mind (for example) that the FTSE100 is currently more than 10% lower than it was 16 years ago!

Am I really supposed to believe that the average Active (Managed) Fund has lost money over 16 years???

Be grateful for your thoughts and comments!

Cheers!

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Hi folks,

So I read a lot about investments and Index Trackers are widely recommended due to their low cost, and the fact that according to stats a large number (most?) Active Funds perform worse than Index Trackers.

I struggle with this fact, bearing in mind (for example) that the FTSE100 is currently more than 10% lower than it was 16 years ago!

Am I really supposed to believe that the average Active (Managed) Fund has lost money over 16 years???

Be grateful for your thoughts and comments!

Cheers!

The FTSE100 has fallen, but this does not take account of dividends. When dividends are included it's up quite a bit over 15 years. It has still been a poor 15 years for equities (I think returns have been simple to cash over this period). But even a poor UK equity managed fund would probably be up slightly over the last 15 years.

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Hi folks,

So I read a lot about investments and Index Trackers are widely recommended due to their low cost, and the fact that according to stats a large number (most?) Active Funds perform worse than Index Trackers.

I struggle with this fact, bearing in mind (for example) that the FTSE100 is currently more than 10% lower than it was 16 years ago!

Am I really supposed to believe that the average Active (Managed) Fund has lost money over 16 years???

Be grateful for your thoughts and comments!

Cheers!

The 'average' active fund will have underperformed compared to the market, as the figure commonly given is only 20% of active funds beat the market (Vanguard research I think, others give better or worse but it's not promising...)

The chances of finding one of those is the gamble you take i.e. you can take the 80% likelihood of underperforming, or just take the market gains as they stand with much smaller charges.

As Kiwi Toast says, the FTSE100 is not a total return index so doesn't take into account dividends. Compounding in the dividends over ten years will have given you a 50% increase in your initial investment. Though you'd have seen a better return investing in the global stock market rather than just the UK. Check out the cumulative returns on the iShares Core MSCI World UCITS ETF as an example (71% since September 2009 when the fund started).

Various research shows that fees, taxes and asset allocation [look into Meb Faber's work] have a much greater influence over your returns than anything else you can control. Cheapest fees will be index trackers, using an ISA or SIPP will minimise taxes, and asset allocation needs to suit your risk tolerance and how long you intend to invest for.

This is not financial advice. Do your own research; I would suggest spending a few days looking around the Monevator website if you haven't already as they set out the case clearly.

Personally, I see nothing wrong with just taking market gains rather than running the risk of doing worse just for that tiny edge (at greater cost).

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The fact the FTSE 100 is out of favour during this commodities rout sort of makes it more attractive now than the better performing indicies elsewhere for me.

It amazes me that financial commentators are recommending the stars now, FTSE 250 (numbers 101-350), the DOW, Bonds etc. etc.........just like they recommended gold in 2011, houses in 2007; need I say more.

History tells us that you can get some mean reversion and what goes around comes around. But try telling that to some twenty something journo with no memory.

Indeed when the FTSE 100 briefly overtook the DOW (now knocking on the door of 18,000) during the nineties it was all the rage and you couldn't lose. Look at Doctor White's books, he was so cataclysmically wrong it isn't true. UK Equity has been the worst investment for 16 years, so far behind we won't ever get reversion, but some catch up is likely.

The OP is right the FTSE 100 has been crucified against all comers......overseas Equity, Bonds, building society, houses, gold.

By 1999 you could swap 100k worth of FTSE 100 shares with a detached housed in Putney, now you wouldn't even be able to buy a garage in Putney for that or 10% of a house. And yes this is a like for like comparison, a house has a yield or a utility to the owner.

Edited by crashmonitor

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