Index funds beat actively managed funds

When it comes to mutual fund investing, I'm a believer of index funds. During the recent volatile market environment,  actively-managed mutual funds on average produced more losses than the losses of passively-managed index funds.

Average losses for stock-index funds last year were 39.1%, while actively managed funds lost 40.5% on average, according to investment researcher Morningstar Inc.

According to research, when there is a great uncertainty in the market, investors tend to switch their investments from actively-managed funds to index funds.

Actively managed stock funds saw net outflows of $221.8 billion in 2008, while index funds saw net inflows of $17.6 billion, according to data from fund-tracker Lipper Inc.

Index funds' share of the marketplace rose 1.4 percentage points in 2008 to 13.2% from 11.8% a year earlier. Total assets in index funds at year's end were $490 billion; actively managed stock funds held $3.2 trillion, according to Lipper.

I strongly recommend index funds for long-term investments. Low management fee and simple investment strategy of the funds are perfect an average investor.

Source: Actively managed funds lose share to index rivals, MarketWatch.com

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