With the advent of exchange traded funds (ETFs), many well-respected analysts and investors have pointed to the ETF as being a mutual fund killer. Arguably the greatest investor of all time, Warren Buffett, has spoken on numerous occasions about the benefits of buying ETFs and paying lower fees over time for an average passive investor looking to ride the stock market wave higher over the long-run.
Investors who may consider paying as high as 3.5% or 4% per year for a mutual fund instead of management expense ratios hovering around 0.25% for ETFs may be looking at the added value of having a portfolio be actively managed. Many studies have refuted the idea that actively managed funds perform better than the broader stock market over time, with investors in some cases losing significant amounts of money via mutual funds compared to ETFs in management fees – money which could have been kept and reinvested in stocks over time, adding to the compound growth typically associated with such investment vehicles.
While some mutual funds or private equity funds have performed historically better than the S&P 500 index over time, the reality remains that much of the excess return these funds would be able to earn over and above the market return is lost through diversification. Buying into a diversified conglomerate such as Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) is another option for investors considering adding an actively managed portfolio of stocks which should continue to outperform for the foreseeable future.
Invest wisely, my friends.
